Loops Deckers Outdoor Corporation Describes Its Business

¶ … Loops

Deckers Outdoor Corporation describes its business as being "a premier lifestyle marketer that builds niche brands into global market leaders by designing and marketing innovative, functional and fashion footwear" (Deckers 2011 Annual Report). Feedback loops were outlined as being an important component of the Burke-Litwin Causal Model (Falletta, 2008). A feedback loops is a set of elements that is self-reinforcing. There are basically two types of feedback loops, balancing and reinforcing (MindTools.com, 2012). This paper will analyze the feedback loops present in Deckers to identify the opportunities for organizational learning.

Balancing Feedback Loop

A balancing feedback loop is one where the elements in the loop exist in a state of equilibrium. When an element falls out of equilibrium, the other elements change to rebalance the organization. This restoration of balance happens no matter which element falls out of equilibrium or oven if the organization is moving to a new equilibrium point. Indeed, organizations tend to be constantly moving to new equilibrium points. Even with an organization that is growing rapidly, as Deckers is, there can be balancing loops. One such loop links design, satisfaction and demand.

Deckers relies on high quality of design in order to differentiate its products in the market and to attract business. When the level of design is high, the level of customer satisfaction is high, because the footwear not only looks good but performs well. When customer satisfaction is high, this keeps demand levels high. An equilibrium point is established therefore at a high level of quality, satisfaction and demand. This works for any firm in the industry. Cheap footwear companies tend to struggle to attract customers, because they have poor demand and that leads to poor satisfaction. In footwear, people tend to wear the best they can afford, not just for style but for functionality as well. Thus, this loop has a balancing effect, where if design slips so too will satisfaction and demand. Because demand is only loosely related to design, the loop settles into a new equilibrium at the new design level, rather than having this be a reinforcing loop.

This loop is important to Deckers for a couple of reasons. The first is that this loop defines the business. Each company in the footwear industry must choose where its equilibrium point will be, and Deckers has chosen a point at the high end of casual, where fashionable design and functionality come together. This makes Deckers a differentiated player, and helps it to compete in the marketplace. If Deckers loses its competency in demand, the company is going to slip in popularity and this will bring it to a new level of equilibrium. Therefore, maintaining the current level of success requires the company to maintain its level of competency in design.

Reinforcing Feedback Loops

Design is one key function, but it mostly contributes to a balancing feedback loop. Distribution, however, contributes to a reinforcing loop. With reinforcing loops, the different elements of the loop reinforce each other. This means that when one element changes, the company faces a shift in momentum. The elements of what is probably the most important reinforcing feedback loop are quality, distribution, and profit. High quality footwear is attractive to a large number of consumers. Because of this, having high quality footwear facilitates greater distribution. High quality footwear also facilitates premium pricing. With greater distribution because demand is high, and premium pricing, profits increase. As profits increase, the company can put more money into expanding its production capabilities and its distribution networks. Those investments allow it to ensure high quality, but more importantly with by opening new markets the company is able to generate increased profits. Those new profits in turn feed more new market entry, which creates more profits and more market entry. The loop reinforces itself, until it is broken. The loop could break if quality slips, if there are no more new markets or if the company is unable to reinvest in new capacity for any other reason.

This feedback loop is important to the company because it is how Deckers will expand. Remember that at present the company is basically in a niche market, even in the United States. This means there is considerable opportunity even domestically, let alone in international markets. Given that three-quarters of earnings come from the United States, there is a tremendous amount of opportunity in growing the international business. Thus, the path forward for Deckers as it seeks to grow goes directly through this feedback loop. If the loop is fostered, then the company will succeed in growing its business further.

Organizational Learning

Organizational learning reflects the reality that the global business environment is constantly changing. For organizations to succeed in a constantly-changing environment, they too must constantly change. This means that the organization must always learn about the changes, and how it can best adapt to those changes. The organization needs to focus on the outcomes that it wants to achieve and ensure that its strategy is designed to meet these outcomes.

This comes into play with the feedback loops, because the feedback loops reflect elements of corporate strategy, in this case design and distribution are critical elements that drive these feedback loops. For Deckers, especially as it expands, its business will continue to evolve. The objectives that it is working towards may change and that will necessitate a change in the strategies that make up the core of the feedback loops. The loops also provide an excellent opportunity for organizational learning because the feedback represents the main means by which the organization receives the information it needs to make strategy decisions. Failure to listen to the feedback and either stop a negative reinforcing loop or to adjust for a new equilibrium means that the strategy will gradually become disassociated from the organization's objectives. This highlights the importance for managers to understand the feedback loops at work within their organization, and learn how to read the signals that are received from the elements within these loops.

For example, within the reinforcing feedback loop, the organization can learn about the strength of its designs. These are directly related to satisfaction and demand. The latter two elements of the loop, especially demand, are signals that will be conveyed by the marketplace to the company. The opportunity is there for the company to receive these signals and interpret them with respect to the quality of the designs. This could result in changes to the strategy, for example hiring and firing of designers, or focusing on different themes. The opportunity for learning is clearly there, however, in the company's ability to interpret the market signals.