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Nutrisystems and Feedback Loops
Company Background -- NutriSystems, Inc. was founded in 1972 and is headquartered in Pennsylvania. It is a commercial provider of weight-loss products and services, until 1999 offering brick-and-mortar weight-loss counseling and products and then moving to a direct to the consumer model through the Internet, mail order, and phone. Since 2001, the products have been featured on the QVC shopping network and most recently (2009) in Costco stores. Most recent (2010) financial data indicates gross revenue of $510 million with net income of $33 million, down from 2006-2009, likely based on external economic factors (nutrisystems.com, 2011).
Fiscal Performance - NutriSystems revenue has moved from $565 million in 2006 to $509 million in 2010, with spikes of almost $800 million in 2007 and a drop to $686 million in 2008. What is significant is their operating income percentage:
Note that each succeeding year competition and economic pressures have resulted in a diminishing percentage of the ROI for the company, while it is still being forced into spending more money on marketing, sourcing, and information materials. Still, in this industry and economy, a 7% margin on net income allows the company to remain health and still within a growth mode.
Organizational Models (Background) - Within any organization, there are numerous models and permutations that offer explanations to the performance of that model. Open systems theory, for instance, focuses on the manner in which a system continually acts with itself and its environment. It is a diagnostic model that is often used in evaluating an organization to determine whether certain changes are viable. The model uses interactions that may take the form of information, energy, material transfers into our out of the system -- all dependent upon the type of organization under consideration. When dealing with companies, the model considers organizations as unique social systems that are dependent upon the entire paradigm in which they exist. The open systems model has inputs, transformations (or throughputs) and outputs and has a feedback loop that connects the organizational outputs to renewed inputs. The model is quite effective and important when an organization needs to analyze and diagnose external variables that tend to affect the business (Emery and de Guerre, 2009).
Open Systems and Feedback Loops at NutriSystems -- Open systems theory is used within organization to carry out the appropriate diagnosis of input/output loops that affect the performance of the business. Specifically, we can use it to investigate the efficiency, efficacy and/or flexibility of the internal operations and how external issues affect the business. The model and feedback loops particularly recognize that organizations are critically affected by factors both within and outside the business and tends to uncover whether or not organization changes are necessary in order to solve some of the uncovered issues. Additionally, the feedback loop model is used to develop more effective leadership, communications, planning, and strategies as a means of improving organizational performance (Organizational Diagnostic Models, 2008).
In the case of NutriSystems, Inc., open systems may be most effective in determining whether the current model is working; whether different functions, operations, and integral parts within NutriSystems are aligned well to adapt to internal and external factors. This is critical because the organization operates in an environment that is highly competitive and is influenced by social, political and economic factors (Senge, 2006, pp. 83-91). Organizationally, NutriSystems should look at open system feedback loops in order to prevent surprises and evaluate trends in organizational diagnosis and strategy, market strategy and saturation, cost / and volume profit analysis.
Organizational Diagnosis and Strategies
NutriSystems is headed by the CEO, then followed by CFO, CMO and executive Vice President, operations and finally directs.
The structure is line with the company's strategy and therefore is used to ensure the organization performs to the desired outcomes and operations are efficient. The company seems willing to relook and reanalyze its mission and goal structure and is not set in a previous pattern.
Marketing Strategies and Saturation
Economic impact and competitive feedback critical; Nutrisystems responded by introducing a family plan, greater recipe guides, iPhone, Android and BlackBerry applications, and a dedicated website for healthcare professionals.
Penetration seems on a downward trend, although positive from moving from brick-and-mortar; phone and Internet provides greater consumer interaction and education; shelf space at Costco likely focuses more on replacement products.
Cost/Volume and Profit Analysis
Introduced program into Canada and Japan, had a small lowering of margin but signs of recovery.
Financials show costs are holding fairly steady in relation to volume.
Overall Feedback Loop
Current outsource programs remain relatively vulnerable to market changes; product development needs to be continual, client loops show boredom after 1-2 months.
Own numerous trademarks and patents; well suited for volatility of industry and for cyclic nature of purchasing cycle. Need to provide more information to consumers on a regular basis.
Analysis- One way systems thinking has helped organizations analyze feedback loops is to think of the organization as a physical brain -- noting the vast amounts of stimuli and feedback constantly being processed by the brain -- extrapolating learning and behavioral styles into the way organizations process information, use that information, evolve based on stimuli, and provide output based on that stimuli. First, if we take an overview of the broader purpose of what this concept of Brain/Organization means, we find that more than anything, it is a way to organize and process information. Thus:
This, of course, represents how organization memory functions. Like individual brains, different organizations "learn" in different ways, process information in different manners, and teach their employees to participate in the culture in disparate ways. If we think of individual employees as neurochemicals and the equipment they use as neurotransmitters we can easily see how the employee communicates with other employees or receives hierarchical information, processes that, interacts with others, and uses equipment, whether physical or mental, to use that external stimuli to perform an action. Like the brain, this stimuli-response is an evolving and fluid process; highly dependent on environmental and other factors. One could take the analogy further, too, and compare different parts of the physiological brain with the functions within an organization: one group organizes, one distributes, one provides analysis, one is more concerned with the physical plant, and all communicate internally and respond to the overall needs based on the particular environment of said organization (Avetyan, 2006).
Looking specifically at NutriSystems we find that there are a number of positive feedback loops the company has used to address specific issues:
Loop -- Brand recognition/Efficacy -- Independent surveys found that clients lost an average of 1-2 pounds per week for up to 10-11 weeks when following the program. The company is over 35 years old, and has been shown to be a lower cost, highly scalable model.
Loop -- Availability Convenience -- Improved frozen offerings in 2010 and early 2011 with a more attractive price-value relationship for the consumer.
Loop -- Differentiation from competition -- creation of a NutriSystems Culinary Council that consists of five prominent U.S. Chefs. These professionals will also help craft new tastes and menu items that are more taste friendly.
Loop -- accessibility -- increased e-commerce platform with publishing applications, support, business links and an easier coaching system that will help close the loop of information lack expressed by some regarding shelf only product.
Loop -- Credibility, differentiation from fad diets -- NutriSystems set up a dedicated site for health care professionals and is reaching out to that segment to assist their clients in safe and effective weight loss programs (Annual Report).
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