Feedback loops and their mechanisms

¶ … Loops at Wal-Mart

Wal-Mart relies on a complex network of feedback loops in order to help it meet its strategic objectives. They form one of the company's most important sources of competitive advantage - the ability to move quickly. When the dominant company in an industry is also one of the most nimble, it shuts down an important source of competitive advantage for smaller firms. Moreover, it allows Wal-Mart to be innovative. Much of Wal-Mart's growth can be attributed to its innovations, both in its product/service offerings and in its operations. The company is able to consistently outperform specifically because of the strength of its feedback loops. The most important of these loops is the Saturday Morning Meeting, which has also become the model for other, smaller meetings that are conducted with regularity throughout the organization. This tradition was initiated by Sam Walton and has continued to be a fixture through the current day. Today's Saturday meetings typically feature regional manager and other executives meeting in Bentonville to discuss the issues of the week.

Another important feedback loop is the real-time sales statistics that the company generates. It can, for example, identify that baby formula sales have become increasingly correlated with paydays in recent weeks (Baertlein, 2008). Wal-Mart collects data on all sales throughout its system and collates the data into reports that are disseminated to stakeholders throughout the company. These reports are used, for example, by store managers to determine product positioning within the store and for ordering purposes. They are used by purchasing managers to determine which products should be carried by the company as a whole. They are also used to support Wal-Mart's just-in-time inventory system, thus reducing inventory costs.

The Saturday Morning Meeting dates back to the earliest days of the company, and is an essential component of Wal-Mart's success for several reasons. These meetings reinforce the corporate culture, they involve discussion of sales figures, disseminate knowledge, allow for informal performance evaluation and give managers an opportunity to present feedback of their own in a relatively unstructured, casual environment. Senior management uses these meetings to reinforce positive behavior or performance and analyze negative behavior or performance. New strategic thrusts are communicated and they are also sometimes developed. The regional managers who participate in the meeting have the opportunity to discuss national and regional issues as well. So while the loop is primarily focused on top-down communication, there is the opportunity for bottom-up communication as well at the Saturday Morning Meeting.

A chose these two particular feedback loops not only because of their importance to Wal-Mart's success but because they represent different types of loops. The Saturday Morning Meeting is a reinforcing feedback loop. The company has been deliberate in their usage of the meeting in this way. Wal-Mart management uses the loop to reinforce organizational culture, to tie managerial issues to its core strategies, and to continuously present the idea that the company is in need of improvement (Schlender, 2005).

The real time sales data is a form of balancing feedback. It is Wal-Mart's way of allowing the organization to interpret the external environment. This environment is constantly shifting. The result of these constant shifts can be measured by Wal-Mart in terms of macro-level sales data, but the real time sales reports represent micro-level sales data. This allows Wal-Mart to make continuous micro-level adjustments rather than periodic, broad-based adjustments. Managers use the reports to make adjustments that balance the company's performance. Thus, this feedback leads to goal-seeking behavior, as measured by key outputs such as same-store sales growth, inventory turn and gross margin.

The Saturday Morning Meetings have significant impacts on Wal-Mart both in the short-term and long-term. Because the meetings are held weekly, there is considerable emphasis on short-term considerations. Each meeting, for example, begins with an overview of the week's sales figures. Stores or departments that outperform or lag are identified and discussed. This helps to reinforce managerial focus. In other firms, such feedback may be conducted quarterly or annually. In that time, there may be lapses in focus. But with weekly feedback, there are no opportunities for managers to lose focus. Another key short-term impact is with regards to issues that could adversely affect performance. Wal-Mart is able to identify these issues and deal with them weekly using this feedback loop. This means that problems are dealt with quickly, before they become a drag on performance. The singling out of underperformers for the week helps in the problem identification process. By bringing different store and regional managers together (between 400 and 600 each week), Wal-Mart also eliminates the possibility that problems can arise independently in different stores. Instead, problems are identified and rectified while they are still minor is scope.

The Saturday Morning Meetings also have several long-term impacts on Wal-Mart's organizational effectiveness. One of their most important roles is to reinforce the organizational culture. The culture of Wal-Mart is essential to its cost leadership strategy and its ability to deliver a high level of customer service despite the focus on cost reduction. The meetings also reinforce key messages regarding strategy. One component of the Saturday Morning Meeting is the use of media presentations regarding merchandising. These presentations in part represent short-term, week-to-week, merchandising lessons, but they also represent a consistent pattern of knowledge transfer. Each manager becomes stronger with regards to their knowledge of the business and this knowledge is then disseminated throughout the company.

The real times sales data is used to support many short-term tactics. It supports the purchasing process at the store level, by providing manager's with on the spot knowledge of what is moving, what isn't. This feedback can be used to evaluate different managerial initiatives as well, such as a recent alteration to the store's layout. At Wal-Mart the store level ordering system also supports the company's inventory reduction initiatives. Wal-Mart has consistently derived competitive advantage from its high inventory turnover and low inventory costs relative to its competitors. The real-time sales data supports this by providing managers the tools needed to make inventory and merchandising decisions in real time.

The real time sales data also functions as a long-term support mechanism for organizational effectiveness. Long-term trend analysis can be used to make major shifts in product mix, product placement and other merchandising decisions. The purchasing department uses the data for long-range planning and supplier negotiation. The company also uses this data for long-range planning of seasonal product requirements. Additionally, the real time sales data supports the organizational culture in that it focuses attention on the minutiae of merchandising and cost reduction, key tenets of Wal-Mart culture.