National Presto Industries Defense segment of the business at National Presto Industries, Inc. provides an excellent example of a reinforcing loop. The main issue at hand here is the dependency of this particular segment of the business on the contracts received from the Department of Defense and the U.S. Army, as the sole supplier of contracts and client for National Presto Industries on this side.

The arguable reasoning can be that as the Department of Defense provides more contracts for the company, National Presto Industries needs to provide more resources in order to be able to fulfill those contracts. While this is a positive element in the present time, in turn, this type of resource allocation is likely to make the company vulnerable due to a lack of diversification.

Understandably, as previously shown, if the U.S. Army finds a different supplier for its ammunition or decides to break off the business relationship with National Presto Industries, then (1) the entire defense segment will disappear and (2) a large volume of resources will remain tied into a part of the business that no longer exists. The latter implies additional, significant costs that are incurred by the need to reallocate. The reinforcing loop is, thus, as follows: an increasing number of contracts from the Army and Department and Defense makes the company allocate more resource to the defense segment, decreasing its capacity to diversify and increasing its dependency on additional contracts for ammunition.

From a learning perspective, one can apply a very simple model of the theory of organizational learning that includes scanning, interpretation and learning (Thomas, Clark and Gioia; 1993). The scanning segment should involve data collection at the level of the entire organization. The data collection phase is important...

Other relevant data could show a consistent increase of resources being allocated to the defense segment of the business, triggering the potential question as to what will happen with these resources if that respective part of the business disappears. All these are part of the second phase of the learning loop, the interpretation of information and data by which the data is given meaning relevant for the strategic decision making process in the company.
The final phase of this simplified model for learning is the phase where action needs to be taken. This will be later explained and translated into a Balancing Loop. For this phase, the data collection and interpretation phases need to be translated into something palpable, some sort of decision that the organizational management will make in order to reverse a process that has been identified. In this particular case, the data collection and interpretation phases should result into a decision to either diversify beyond a sole defense client or to limit the cooperation with the Department of Defense to a certain, predetermined level.

This learning phase, as mentioned, could be translated and explained into a balancing loop or a negative/controlling feedback. The idea of this loop is as follows:…