Feedback loops are circular causal chains. They identify the inter-relationships that exist between phenomena in a system. System diagrams usually have balancing and reinforcing loops that show the causal effects that variables have on each other and on the entire system. Feedback loops portray the causal effects across both space and time and also attend the internal dynamics. Reinforcing loops are positive feedback loops that drive positive values in criteria important to the systems (Goodman, Kemeny & Roberts, 2010). Balancing loops show the mechanisms that counter reinforcing loops, thus driving the system towards equilibrium. In the casual loop diagrams, reinforcing loops are represented by a positive sign (+) whereas balancing actions are represented using negative signs (-). In industrial service Industries of America, there are balancing loops as well as reinforcing loops in the recycling segment.
ISA recycles ferrous and non ferrous scrap as well as stainless steel. The recycling division normally accumulates, buys, manufactures and sells ferrous and non-ferrous scrap metal to refineries, smelters, integrated steel makers, steel mini-mills and foundries. ISA buys ferrous and non-ferrous scrap metal basically from commercial as well as industrial producers of copper, stainless steel, aluminum among other metals, and from retail customers and scrap dealers who distribute the end products to ISA facilities.
I chose the ISA recycling segment as it faces certain risks such fluctuation in price of the recycled materials, services and equipment, varying demands for waste organization systems, cutthroat pressures in waste administration equipment and systems, loss of customers, and cutthroat pressures in the waste operation business. The figure below shows a causal loop diagram of sustainable development in ISA. The ISA system feedback structure is captured by the causal diagrams below. The diagrams have both reinforcing loops as well as balancing loops. The feedback loops in the diagram control the demand and supply of ISA end products.
The figure above shows the customers reaction to changes in ingot price. If ISA increases price of its prices to mitigate the risks that it is currently facing, the consumption will reduce and this will cause a reduction on the metals monthly shipment. When less metal is sold or shipped, the inventory will build faster resulting in price reductions. The figure also shows the negative feedback loop which involves the primary producers’ reaction to changes in metal prices. Primary metal holders add to ISA inventory at the mills and smelters. This will increase the inventory ratio and lower the ingot prices. If ISA delays so as to watch and assess the changes in price, the primary metal holders will reduce the fraction of capacity in operation. This will result in reduced monthly production and enable ISA monthly shipments to lower inventory levels to the normal levels. This case warrant a detailed study because the examples give result from out of the box thinking.
Organizational learning theory states that organizations have to change their goals and actions to accomplish those goals in order to be competitive in a changing environment. For learning to take place, the firm has to make conscious decisions to change actions in response to changes in circumstances. Initial learning occurs at the individual level and the learning becomes organizational learning once the information is shared and stored in the memory of the organization in such a manner that it can be accessed, used and transmitted for organizational goals. Peter Senge termed a learning society as an assembly of persons who repeatedly enhance their capacities to generate the things they wish to make (Smith, 2001).
Organizational learning is the process through which employees acquire new technological capacities and knowledge, which can enhance tactical decision making, strategic design or planning and operational activities. Individuals have to build new knowledge and skills for organizational learning to occur. Organizational members usually come and go and the leadership also changes, however, the memories of an organization preserve certain norms, behaviors, mental maps and values over time. This memory enables the organization to use the capabilities of individual persons to accomplish group goals while at the same time limiting the group dependence on any particular individual. When knowledge is organizational, employees will have captured new or expanded capacities in such a manner that the organization does not rely on certain persons to exploit them.
There are opportunities for organizational learning in every feedback loop: primary monthly production, fraction of capacity in operation, ingot price, annual demand, inventory ratio, monthly shipments and inventory at smelters and mills. When it comes to ‘primary monthly production’ ASA employees can learn the way primary metal holders’ reaction to changes in metal prices affect the ingot prices of the organization. From the causal loop diagram, the primary metal holders add to ISA inventory at the mills and smelters and this increases the inventory ratio and lowers the ingot prices. By having this in mind the group members can learn to monitor the primary metal holders’ reactions so that they do not reduce the price at any one time. Organizational learning can also take place in the ‘fraction of capacity in operation’ feedback loop because the fraction of smelting capacity in operation depends on the producers’ view of the ingot price. Organizational learning takes place when the employees are aware of the fraction of smelting capacity that would positively influence ingot prices. A learning opportunity is thus presented to the group of employees as they attempt to evaluate the fraction of smelting capacity that would positively influence ingot prices.
The ‘ingot prices’ feedback loop also presents a chance for learning because the company employees should learn the consumers’ reaction to changes in ingot prices. An increase in price normally leads to reduction in consumption as well as monthly deliveries. The company employee should evaluate whether the inventory normally builds more fast when prices are reduced. The employees have to estimate the time lag for consumers to react to changes in the ingot prices. Both the consumers and producers react to ingot prices; this thus presents a chance for the employees to monitor these reactions.
The ‘annual demand’ feedback loop also presents a learning organizational opportunity because the annual demand for steel is usually held constant at a particular measurement per year to enable the organization to concentrate on a situation in which only the producers and not the consumers react to the price changes. The annual demand thus presents a learning opportunity because the group members have to evaluate the particular measurement per year critically. This enables them to test the metals production cycle. The total annual production differs in a cyclical fashion because of cycles in primary production.
The ‘inventory ratio’ also provides a chance for the organizational to learn because the ingot prices change as inventory ratio changes. In the casual loop diagram, lower inventory ratio values are assumed to push the price higher and vice versa. ISA group members need to establish whether this is the case. They should determine the percentage increase of prices if the ratio falls or rises so as to improve performance. Primary production is also closely related to the inventory ration because it adds to the inventory at smelters and mills and this builds the inventory ratio lowering the ingot price.
Monthly shipments also present a chance for organizational learning and improvement. A reduction in price normally causes less consumption and a corresponding reduction in monthly shipments. From the causal loop diagram, it is assumed that when lesser end products are shipped, the inventory usually builds faster and this causes a price reduction. ASA employees should, thus, establish the relationship between the monthly shipments and inventory to check price reduction. The monthly shipments move the end products from the millers to the final consumer. They are, thus, an important aspect of the causal loop diagram that needs to be monitored.
The ‘inventory at smelters and mills’ also present an opportunity for learning because primary production usually adds to the inventory at the smelters and mills. From the causal loop diagram, it is assumed that once the inventory is added to, the inventory ratio builds and decreases the ingot price. ASA employees thus need to assess the inventory that should be held at a particular time to ensure that there are no price reductions. ASA needs to evaluate the price changes because the primary producers normally reduce the fraction of capacity in operation in such a case.
Both the reinforcing loops and balancing loops in the feedback process offer an opportunity for the organization to learn and improve its performance. The reinforcing loops such as primary monthly production, fraction of capacity in operation, annual demand, inventory ratio and inventory at smelters and mills cause growth. On the other hand, the balancing loop such as ingot prices and monthly shipments provides stabilizing effects (Bellinger, 2004). All the elements in the causal loop diagram provide a chance for learning in that ASA employees have to learn the way to control the elements in order to increase productivity and prices. This would be in line with McInerney, Nyquist, Santos and Silsbee (1996) line of thinking that when groups of persons have a common vision about the way elements of a system interrelate with each another, organizational learning or team learning takes place.