Introduction
The case of RadioShack Corporation appears to be a paradox in a certain sense. On the one side, the company is accused of selling outdated and unwanted products while on the other, its financial performance is quite satisfactory. Pricing is also not an advantage for the company. The Annual Report of the company for 2007 shows that sales declined from 4.7 billion USD in 2006 to 4.2 billion USD in 2007. But its operating income rose from 157 million USD in 2006 to 382 million USD in 2007.
The first quarter of 2008 compared poorly with the same period in 2007, but the second quarter showed an improved performance in comparison with the previous year (sales increased 6.9% and operating income increased 10%). (Moad, 2007). It would be worthwhile to use the feedback loops emphasized in systems theories to see how this current scenario would affect the organization in the future.
Feedback loops
Feedback loops are essentially diagrammatic representations of the working of dynamic systems. A cause and effect relationship is will be analyzed in such a loop. “It is circular with a sequence of influences producing a feedback loop. Loops are closed structures that represent a sequence of system interactions without a beginning or an end.” (A systems view of business analytics, Part 1- introduction to systems thinking, 2008).
Loops can be positive or negative. If the cause results in a negative or stabilizing effect it is called a negative or balancing loop. If the cause results in a positive or increased effect, it is called a positive or a reinforcing loop. An example of the reinforcing loop could be the increased productivity due to incentives. The more incentives the more will be produced. This is only a simple example since there is a limit after which productivity will not increase with incentives. An example of a balancing loop would be to decrease the gap between productivity and demand. An option would be increasing the workforce till the gap is narrowed and eliminated. (Moad, 2007).
The figure on the left shows the reinforcing loop while the one on the right shows the balancing loop.
RadioShack Corporation
As mentioned earlier the paradox of RadioShack is that it is viewed as selling outdated products on one hand and satisfactory financial performance on the other. It is proposed that the balancing loop be taken concerning the style of stores it operates. The advantage that the company offers to its consumers is the proximity to its store locations in the United States. The company has over 4000 stores and 900 kiosks that are mainly located inside popular shopping malls. The annual report tells potential customers that they can save tax and cut down fuel bills if they purchase from RadioShack.
This is because customers have to travel at the most a few kilometers either to buy or service their products. This could be one of the reasons why the company was successful in the past as well as why the company is showing a satisfactory financial position at present. Once the strategy was finalized for this sort of expansion the reinforcement would work like this. RadioShack begins its expansion by opening small outlets at as many centers as possible across the country. As the centers come up the number of customers also increases. The number of stores will result in increased visibility for the company. The increasing customer base of satisfied customers will create strong word-of-mouth advertising for the company. all these will result in reinforcing its sales volume.
It can be seen that once RadioShack starts to increase its stores, the number of customers will increase. The number of stores and customers will also increase visibility. All this will result in very favorable word-of-mouth publicity. This again will lead to increased revenue and profitability. The increased profitability will enable the company to open more outlets which will result in a repetition of the loop shown above.
From reviewing literature about the company, this seemed to be a good strategy in the past. It even seems to be working in the short run at present. But customers nowadays are choosier about the products they buy as well as the size and facility of the stores. Hence this strategy may not work out to be advantageous for RadioShack in the long run.
The balancing loop of RadioShack can be drawn concerning the continued use of outdated products. The company still sells many do-it-yourself kits that were popular in the past. But with the concept nowadays is the throwaway product and with people having very little time and patience to sit and assemble an electronic product. Many analysts think that the company will be losing revenue in the future if the strategy is not changed. So the target here that will be achieved is a lower figure of sales revenue. The action part will be the continued as of outdated products. It will also include the strategy on the part of the management to continue with these products.
The perceived gap is the difference between the predicted fall in revenue and the actual fall. At present, the company has managed to stay reasonably profitable with satisfactory financial performance. But if certain strategies like the outdated products mentioned above and the style and size of the stores are not rectified the company could very well narrow the gap between predicted and actual fall in revenue.
Even if it could be considered to be anecdotal, the statement made by Julian Day, the CEO of RadioShack would be relevant here. The statement appeared in the online version of the magazine Onion. The article says that even he cannot understand how the company is showing such good financial results.
He cannot analyze how the company was able to achieve so many sales during the year. What he is supposed to have said was “There must be some sort of business model that enables this company to make money, but I’ll be damned if I know what it is,” (Even CEO can’t figure out how RadioShack is still in business, 2007). The Company should very well reexamine its strategies to do well in the future.
References
Moad, Martin O. (2007). RadioShack corporation announces increased sales and operating income for the second quarter of 2008. News Centre. Web.
A systems view of business analytics, Part 1- introduction to systems thinking: Systems thinking models – Causal loop diagramming, Dave Wells. (2008). b.eye, Business Intelligence Network. Web.
Even CEO can’t figure out how RadioShack still in business. (2007). The Onion – America’s finest news source. Web.