Reinforcing and Balancing Feedback Loops at Whole Foods Market Case Study

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Business Management

Feedback Loops at Whole Foods Market

In any business there will be the presence of feedback loops. Effective businesses are likely to pay attention to the different feedback loops which exist, using them loops to support and enhance the businesses in achieving its' goals. Whole Foods Market has a number of different types of feedback loops, looking at the firm in more detail will allow the loops to be identified. The paper will start by discussing the manifestation of feedback loops and the different types of loop that exist, and then apply the theory to Whole Foods Market.

Different Types of Feedback Loops

Feedback loops may be divided into two categories; referred to as reinforcing loops and balancing loops (Bellinger, 2004). The category names are relatively self explanatory, defining the way in which the two loops may be observed operate. The first category, the reinforcing loop refers to a circular pattern of behavior and/or actions that amplify or magnify particular outcome patterns, such as attitudes or behavior (Bellinger, 2004). By comparison a balancing loop is one where there are positive and negative forces in place that result in the maintenance of an existing position, with the positive and negative forces balancing each other (Bellinger, 2004).

Both reinforcing and balancing loops can result in beneficial outcomes or detrimental outcomes, reflective of the type of situation in which they manifest; a reinforcing loop that supports increasing levels of motivation is likely to be desired in a firm as it results in a beneficial outcome, whereas a balancing loop, such as one which results in resistance to change, may be seen as detrimental.

Whole Foods Market Reinforcing Loops

An excellent example of a reinforcing feedback loop is seen with the 'gainsharing' element of the employee remuneration package. Gainsharing is a way in which the employees are able to earn bonuses based on the productivity levels. The system is one in which all employees participate, they are given a bonus that is based on an equation, including the overall labor productivity of the teams in which they work, which each retail store making up a single team, as well as the firms overall level of profitability. The feedback loop is seen in the way that the scheme operates, supporting self-managing teams that effectively utilize their own labor in order to gain rewards.

The system is effective due to the way in which it operates, and connects employees directly with the rewards of good performance, with bonuses paid on a bimonthly basis. In 2013 the bonus scheme increased average wages for employees of Whole Foods Market by approximately $.86 per hour, which for an employee working 40 hours a week equated to an additional $1,788 for that year (Whole Foods Market, 2014). The process results in employees working hard, but also expecting hard work from their peers, which can create a positive loop, due to the internal workforce influences. In the earnings report for the second quarter of 2009 it was noted by co-president and chief operating officer AC Gallo that this gainsharing system and resulted in the firm having self-managing labor costs with an extraordinarily high level of budget compliance.

Effective nature of this reinforcing feedback loop is not only the direct benefits associated with the financial rewards from the scheme, but the process and communications company scheme. For each team the rewards are allocated based on a total hours worked by the team, with individual bonuses allocated on a proportional basis. The high level of motivation and associated rewards and also resulted in an extremely low level of attrition; less than 10% per annum (Whole Foods Market, 2014). In addition, when examining the productivity per employee, the results are apparent in the financial statistics; the income per employee is more than 50% higher than the average for the grocery market industry (MSN Money, 2014). The benefits associated with the rewards reinforce the efficiencies that are gained, and a positive culture, which are also supported by the internal communications recognising individual and team performances, providing intangible as well as the tangible rewards. It may also be argued that the distribution of the bonuses on a regular basis, every other month (every other pay check), also creates the ability to benefit in the short-term. Many company bonus schemes operate on an annual or semi-annual basis, which may not always motivate short-term behaviour, as poor performance in one part of the year may impact on another, with the monthly assessments, paid every other month, there is a constant renewal of the positive cycle, and the knowledge that additional effort and hard work will result in benefits in the near, rather than the far, future.

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Another reinforcing loop may be seen in the way that the share prices for the company move on the stock market. When management undertaking actions that are generally approved of, and investors believe are likely to improve the performance of the organisation, the share price will increase. Therefore, it is likely that management will seek to continue with those types of actions, in order to maximise share price movements for the benefit of the firm and the shareholders. The moves that are seen as beneficial by the stockholders also likely to be the moves that will increase the possibility the firm, such as increasing sales, and may be seen as a reinforcing the aggressive growth strategy that the organisation has been pursuing for many years. However, like many other companies, the firm has seen some challenges in recent years, and the share price dropped reflecting the less positive outlook by the stockholders. But, in recent months the share price has once again increased, notably this has coincided not only with changes in strategy, such as refurbishments of stores, and new facilities such as wine bars, and even a golf course, it also coincides with a rise in sales. Therefore, it is highly likely that the reinforcing loop will be seen to continue, with further innovations on strategies to improve business, which will be accompanied by increasing sales, and an increasing share price.

Whole Foods Market Balancing Feedback Loops

There are also a number of balancing loops in place at Whole Foods Market. One excellent example is the way that the firm manages inventory. For any grocery firm it is important to have good inventory management; there should be sufficient goods to sell to meet the customer demand with good quality produce, but not too much so that it spoils. For Whole Foods Market this is particularly sensitive as about 60% of the inventory is perishable produce with only a limited shelf life. Too much stock may lead to waste which will reduce productivity, while insufficient stock will reduce sales.

The inventory management system, which uses complex computer inputs, includes the use of various factors that may impact on demand to undertake forecasting for the different products. For example, if hot weather is expected it is likely more salad items will be sold; in cold weather more root vegetables will be sold. Local marketing, promotions, events, and even trends and fashions and local customer preferences may all need to be considered. The ordering process will also consider issues such as past sales levels, current inventory levels and the expected life of the products to arrive at a suitable level of inventory, by assessing the expected level of sales, adding a contingency level and deducting the existing stock levels. This is a process that can also create organizational learning, as it is found what customers do and do not want, especially if feedback from customer surveys and comments is sought and incorporated into bettering the deacons making process.

A second balancing loop can be seen with the limits that have been placed on the pay for the executives of the firm, where there is a limit of 19 times the average wage for a full time employee (Whole Foods Market, 2014). If the average wage increases the executives wage may increase, but if they decrease and it results in the wages of the executives being above the cap, they will be decreased; maintaining a direct link between the executives' wages and the employees' wages.

Conclusion

There are many types of feedback loop in Whole Foods Market, the firm appears very adapt at using them in order to learn and benefit the firm. The loops in this report have been presented as independent loops, but in reality they are also interdependent due to the way in which they form part of the organizational culture. For example, the effective use of the inventory loop which helps to support productivity, which is seen with the reinforcing loop of the gainsharing. Improved firm, performance also increases the potential for the stock prices to increase, another of the reinforcing loops. In all cases the firm is able to leverage the results, as long as they are aware of the results, and use them to the benefit of the firm, which appears to be supporting the firms goals….....

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