Telecommuting and the marketplace transition to the telecompany 5 – hybrid business models

This is my fifth posting to a series in which I outline and discuss a new and emerging business approach that is coming to have tremendous impact, and both on marketplaces and economies and on how we do business, and on individual employees as they plan for and carry out careers (see Outsourcing and Globalization, postings 48 and following for Parts 1-4.) And this is where I finally begin to explain why I have stated from the beginning of this series, and in present tense that the approach I am writing about here is (currently) “coming to have tremendous impact.”

So far I have primarily been focusing in my analysis and discussion on two distinct business models that can lead to the telecompany:

• The costs constraint telecompany model, with its focus on limiting fixed operating expenses, and
• The shifting opportunities-oriented telecompany model with its focus on capturing short-term and transient opportunity.

And I have focused on those two approaches as pure play implementations where as a single, coherent operational and strategic approach, a business is strictly and exclusively following one or the other of these business models (see Part 3 for a more detailed discussion of the costs constraint model and Part 4 for the shifting opportunities-oriented model.)

I have in that, focused on where current emerging trends are leading. Here I note that these approaches are still primarily being pursued as strategic options and as components of larger business systems – parts of larger business models that also include elements that call for maintaining in-house staffing. And in this case, large amounts of the workforce at a business at any one time might be working in accordance with a more telecompany approach but the business itself is not strictly speaking a telecompany – at least yet and it does not see itself as being a telecompany either.

This approach however, is already important for its prevalence and impact as a side strategy that is increasingly becoming mainstreamed, and certainly for the better known, cost constraints approach. And the implementation of that form of telecompany approach has become a source of political and socioeconomic contention too, as the spread of telecompany-based strategy as a utilized approach has contributed significantly to creating our seemingly jobless economic recovery from the Great Recession in countries like the United States. And it has led to even greater and more sustained unemployment in countries and regions such as the European Union during this same period.

This posting is about mixed and hybrid strategies and business models, and the reimagining and partitioning of the overall workforce and employer needs according to which employment strategy would make the most economic sense and for which job descriptions to be filled.

Stated as a set of strategic decision questions, from a hiring perspective should a given position be filled according to:

• A cost constraints approach, and according to the logic that there are always more potential hires looking for that specific work, who would in effect compete down what they would ask for in compensation?
• A shifting opportunities approach where costly or not, specialized skills and experience are needed and at a high priority, but only short-term and/or periodically and as a business standard for how it hires in general?
• A more traditional in-house employee approach?
• A more traditional consultant and outsourcing approach that focuses on identifying specific limited ranges of tasks that would best be farmed out, but from the business context of in-house employment as their norm?

I would argue that we are in a transition stage in all of this in which businesses are discovering new balances of implementation, and as such expanding out the overall available universe of business model approaches in use that can be tapped into, in creating value and profit. And the range of pure play business models – models following just one of these employment strategy approaches, is expanding and will continue to do so.

And especially going through this transition period, implementation of even partial telecompany approaches, and certainly cost constraint model approaches will drive a great deal of societal and workforce discontent, and certainly for those who feel themselves dislocated from being pigeon holed into career paths that companies could hire as freelancers and part time employees.

As a final thought here, I see us collectively facing a transition as we proceed into the 21st century, that in many ways mirrors the changes in overall economy, in career demographics and in societal world view that we historically experienced going through the first and second industrial revolutions and the farm to factory movement of the early 20th century (see for example, “From Farm to Factory: Transitions in Work, Gender, and Leisure at Banning Mill, 1910–1930s”.) And we are still in the beginning and early stages of this current telecompany transition and with a great deal still to come.

I am going to finish this series at least for now with this posting but I will continue to post on issues that closely align with and relate to those I have been discussing here. In fact as I first stated in Part 1 of this series, in a fundamental sense everything in this blog connects here as one of my core focal points. Meanwhile, you can find this and related postings at:

• Guide to Effective Job Search and Career Development – 2 (as a supplemental posting),
• Outsourcing and Globalization and
• Macroeconomics and Business.

Telecommuting and the marketplace transition to the telecompany 4 – defining the business model in a telecompany and virtual business context 3

This is my fourth posting to a series in which I outline and discuss a new and emerging business approach that is coming to have tremendous impact, and both on marketplaces and economies and on how we do business, and on individual employees as they plan for and carry out careers (see Outsourcing and Globalization, postings 48-50 for Parts 1-3.)

I have conceptually and functionally divided telecompanies as fitting at least two fundamentally distinct business models in Part 2:

• The costs constraint telecompany model, with its focus on limiting fixed operating expenses, and
• The shifting opportunities-oriented telecompany model.

And I began a more detailed discussion of the costs constraint model in Part 3. My goal in this installment is to outline in corresponding detail the shifting opportunities-oriented telecompany model. Looking ahead, I will follow this with an installment in which I will discuss incorporation of elements of these two approaches into more standard business models, and hybrid business models. But for now, as with Part 3, I will restrict discussion to pure play businesses that pursue a strictly telecompany business model approach, and of one or the other of these two basic types.

The shifting opportunities-oriented telecompany model: If the costs constraint telecompany model is largely a child of economic downturn, risk and uncertainty, the shifting opportunities-oriented telecompany model is a child of expanding and increasingly fast-paced globalized opportunity. And in a fundamental sense, I began laying the groundwork for this posting when I first began posting to this blog, and with my earliest installments to my directory Ubiquitous Computing and Communications – everywhere all the time.

• One of the emerging realities coming from our increasingly interconnected capabilities to communicate and interact real-time and ubiquitously is that we are witnessing our once local marketplaces coalesce into a single global marketplace.
• One consequence of this is that what might have been a marginal niche market product pre-interactive internet can now reach a wide enough interested audience to be economically feasible and profitable to develop, produce and offer.
• And such offerings might hold stable, long term value and both to consumers and to the businesses that provide them. But such offerings might be seasonal or otherwise short term and fad-based, and offer transient if significant business opportunity while they last – for those businesses that can get in and develop to these transient needs and get out again and quickly and on both ends of that process.

The shifting opportunities-oriented telecompany model applies specifically to businesses that would capture transient sources of value as a route to profitability and business strength. This means bringing in a steady flow of hands-on expertise that is only going to be required short term, and in the extreme case a tipping point might be reached where it does not make sense to have a permanent base of in-house employees at all. A true, pure play shifting opportunities-oriented telecompany would have owners and executive managers (who might very well be the same) and they would bring in a dynamically changing flow of temporary and short-term hire consultants, contract workers and free agent employees.

I wrote of a comparable system at the supply chain level when discussing companies such as Li & Fung, Ltd (and see:

• Fung, VK, Fung, WK and Wind, Y. (2007) Competing In A Flat World: building enterprises for a borderless world. Wharton School Publishing

for further details concerning this company.) One of their defining strengths, as I have discussed in postings such as Moving Past Early Stage and the Challenge of Scalability 9: supply chain-ready business models is in their ability and expertise in working with partner businesses to create effective, optimized supply chains on the fly in order to capture immediately available short term opportunity in rapidly changing markets such as seasonal and fad-driven fashions and clothing. The shifting opportunities-oriented telecompany model brings this mutable dynamism into the individual business as it develops and provides for short-term, transient and fad opportunities, where it would not make sense to pursue a multiple-company supply chain approach.

And at this point I both admit do not having anything like a working crystal ball, and acknowledge that what follows might prove naively simplistic and overly limited.

• I see the shifting opportunities-oriented telecompany model working most effectively if not exclusively for small, lean, agile businesses with at most small headcounts of temporary employees, brought in for short-term specialty needs – at least for companies that only pursue this approach.
• And I suspect that a part of this lean agility is going to involve maintaining a minimum long-term physical plant, with the fixed operating expenses that carries. In Part 2 I first defined the virtual company as one based dually on both the telecompany, and the telecommuting and distant worker model.
• And I see this as being most likely in the information and knowledge development arenas, where skills transiently needed by any one organization would be reliably and steadily needed by the business community as a whole. So freelance workers would be able to find and secure steady employment in those specialties and they would be available, even if that meant moving from one short term employer to another in pursuit of best offers.

And these assumptions will all blow up as the first large company tries the shifting opportunities-oriented telecompany model, and lacking that crystal ball, I have to admit that might happen too – even if I do see it as a difficult fit.

As noted at the start of this posting, I am going to turn in my next series installment to consider hybrid business models that include elements of one or both of the telecompany business models. I add in anticipation of that, that I see combined and hybrid approaches as the primary route to telecompany development in the immediate future, with pure play telecompanies coming later and certainly for those that would pursue the shifting opportunities-oriented telecompany model approach. Meanwhile, you can find this and related postings at:

• Guide to Effective Job Search and Career Development – 2 (as a supplemental posting),
• Outsourcing and Globalization and
• Macroeconomics and Business.

Telecommuting and the marketplace transition to the telecompany 3 – defining the business model in a telecompany and virtual business context 2

This is my third posting to a series in which I outline and discuss a new and emerging business approach that is coming to have tremendous impact, and both on marketplaces and economies and on how we do business, and on individual employees as they plan for and carry out careers (see Part 1: defining the term and putting this business model into perspective and Part 2: defining the business model in a telecompany and virtual business context 1 .) And I begin this posting by acknowledging that the preceding statements include a significant oversimplification, where I reference telecompany business models as if they clearly, cleanly all fit a single unified pattern. That is in fact not true and my goal in this series installment is to divide most businesses that would follow a telecompany approach as fitting one or the other of two fundamentally distinct business models:

• The costs constraint telecompany model, with its focus on limiting fixed operating expenses, and
• The shifting opportunities-oriented telecompany model with its focus on capturing new and emerging, and even fleeting sources of competitive advantage.

The costs constraint telecompany model: The best place to start a discussion of this business model is from an historical perspective and from the lessons of recent history, beginning with the start of the Great Recession. When the economy started its downward spiral amidst all of the uncertainty that financial institution failures and roaring deficits were creating, businesses and business owners saw great impending risk. Businesses downsized, and both to meet reduced need for their products and services, or at least reduced customer activity and revenue generation in their markets. More than that, businesses began to downsize in attempts to get ahead of the curve, and before they had excess staff that their business levels and revenue streams could not sustain. And unemployment started to go up and up and up and this simply contributed as a self-fulfilling prophesy to concerns that we might be entering a second Great Depression rather than a recession.

Without delving into the recovery efforts taken to emerge from this with government stimulus packages in the United States, and with a focus on austerity measures in the European Economic Union – and without delving into the differences in results these approaches have yielded, I simply note that in the United States, a real recovery began to take place and both for business activity and for increasing growth in stocks and other investment values. But here, primarily considering the United States as a working example, job growth and reduction of state, regional and national unemployment rates did not develop in keeping with upticks in the marketplace and the economy as a whole. This was definitely not the first recovery to take place with at least a significant delay in real improvement to the unemployment numbers but this quickly came to be seen as the most extreme such disconnect to have happened.

• Business owners and analysts talked about fear and uncertainty in the marketplace and for would-be employers, and about how they were not willing to take the chance of bringing in new employees again who they might have to let go and after taking on the expenses of bringing them in and up to speed at work, but before they could recoup those up-front costs.
• At the same time business owners and analysts spoke of increased efficiency, according to which fewer employees, and certainly fewer in-house employees could do more and produce more and individually contribute more towards the overall corporate bottom line. So fewer new hires were needed anyway.
• And increasingly when new hires were being brought in they were hired part time or by other means so as to evade having to offer them benefits packages with their associated additional expenses. And increasingly they were being brought in as contract workers and as temporarily hired free agents and not as direct in-house employees of the business itself at all.

This is a trend that has affected businesses regardless of basic business model deployed, but it has also led to development of businesses for which most employees are outside consultants or contract workers. And as an extreme case and end-point to this trend this has led to the development of true costs constraint telecompany model businesses. And I expect that we will see more of them arising and more businesses shifting towards that business model in coming years. In this, pressures and lessons learned from the Great Recession have helped to shape something of a paradigm shift, at least in opening up a new, now viable business model option.

• I would argue that with the economic and marketplace pressures already developing pre-Great Recession and with our increasingly ubiquitous and real time systems of communication and collaboration, telecompanies have become an increasingly viable standard business model approach anyway (see, for example An Open Letter to Jobseekers About Long Term Changes in the Job Market and Employability – 1 and its Part 2 continuation.) That is perhaps where businesses more fitting the shifting opportunities-oriented telecompany model would enter this story, and they increasingly will. (See below for a more detailed discussion of this business model and its implementation.)
• But the economic and marketplace spasms of the Great Recession have accelerated the process of developing telecompanies per se and certainly for promoting a more costs constraint telecompany model approach and if not as an element of a pure play model, then as a part of a more complexly structured, hybrid business model.
• The important point here, however, is that economic pressures and uncertainties, the presence of a large skilled and experienced workforce to draw from, and increasingly developed and vetted processes and capabilities for bringing in and working with consultant and other outside workers have collectively made the costs constraint telecompany model a more viable and attractive option, and if not as a fully followed business model at least as a means of capitalizing on new forms of efficiency.

And with that as at least an orienting start on outlining the costs constraint telecompany model, I turn to consider an alternative path to the telecompany that is also going to become increasingly important in the economy and to the overall workforce: the shifting opportunities-oriented telecompany model. And I will discuss that in my next series installment. Meanwhile, you can find this and related postings at:

• Guide to Effective Job Search and Career Development – 2 (as a supplemental posting),
• Outsourcing and Globalization and
• Macroeconomics and Business.

Telecommuting and the marketplace transition to the telecompany 2 – defining the business model in a telecompany and virtual business context 1

This is my second posting to a series in which I outline and discuss a new and emerging business approach that is coming to have tremendous impact, and both on marketplaces and economies and on how we do business, and on individual employees as they plan for and carry out careers (see Part 1: defining the term and putting this business model into perspective.)

The telecompany:
I began this series by briefly outlining a few of the defining features of a telecompany, and repeat the core ideas to that here, fleshing them out a bit more in doing so:

1. A telecompany, in brief, is a business in which essentially all employees are free agents and contract workers, and the business itself does not have any in-house staff.
2. And in many cases, the workforce in place for these businesses changes dynamically with people joining in for specific time-limited projects and then moving on to work with other client businesses.
3. And ongoing services needed for maintaining essential business infrastructure would be outsourced to separate functionally expert third party providers, rather than having a core group of in-house employees for ongoing continuity there.
4. And I noted that with a true telecompany, it is likely that most if not all employees including owners and executives would work remotely and telecommute, as the telecompany approach reduces need for fixed, owned or dedicated-rental space and certainly for service-oriented businesses. Though as will be discussed below and later in this series that is not at all a requirement.

My goal in this posting is to at least begin a discussion of the 21st century telecompany business model and of virtual businesses. And to lay a foundation for that I am going to explicitly compare and contrast this emerging business phenomenon to two business models that might at first glance seem similar but that in fact very different:

• The seasonal business model in which large numbers of employees are brought on short-term and for specific time-limited if recurring reasons, and
• The online store (see my series Online Store, Online Market Space at Startups and Early Stage Businesses, postings 67 and loosely following for Parts 1-21.)

Seasonal businesses and businesses with seasonal or otherwise periodic surges of temp or part time hiring:
This is the traditional and still ongoing business context in which headcount at least periodically shifts upward from bringing in full and/or part time temporary contract workers. And farms provide what are perhaps the longest standing and best known examples of this business model, with seasonal hires for harvesting crops coming immediately to mind. But these businesses, whether small and family owned and operated or large and even multinational, all maintain core, ongoing business structures and full-time long-term staff – an ongoing pool of in-house employees. They primarily bring in people for short term contract work who can provide extra hands for crucially important tasks that are labor intensive, but where it would not be feasible to maintain large, permanent in-house staff.

This is also the business context and model that is most likely to be confused with that of the true telecompany and particularly where temp hire headcount periodically exceeds and even vastly exceeds headcount for year-round in-house staff. But while these headcount surges are built into and accounted for in the business model for these organizations, they are not telecompanies per se. They are simply more traditional companies that show periodic if consistent recurring surges in the hiring and letting go of staff, to meet immediate short-term and shifting needs.

Online stores:
For point of comparison purposes I will specifically focus here on the pure-play online business, leaving out bricks and mortar businesses with traditional storefronts that also offer online sales options as business lines within larger business organizations.

• Online stores are built and run with a business model and operational goal of capturing market share in new and wider marketplaces than would be available in any local community. And from a business process and fiscal effectiveness perspective they are also build and maintained with a goal of limiting fixed operating expenses, starting with the reduction or elimination of fixed bricks and mortar physical facilities. An online store still might have and maintain warehouse space that they store and distribute inventory from but they strive to keep the physical plant side to their fixed operating expenses to a minimum.
• But an online store per se is probably going to have in-house full time and in-house employees, and certainly for developing and maintaining expertise on what is offered and for providing and managing customer support and a range of other services.
• An online business might or might not maintain work space for online-facing personnel to work from. That is rapidly becoming an expendable option as more and more online stores allow and encourage and even require distance working and telecommuting – only requiring and helping to maintain secure online connections for risk management purposes.
• And of course services such as web site hosting would in most cases be managed through third party providers, and both to reduce cost from not having to replicate complex 24/7 services and for increased information security.
• But bottom line, a standard and by now traditional online store is simply a bricks and mortar store with a much smaller bricks and mortar footprint if any – always starting with the elimination of the customer-facing storefront but maintaining an in-house staff.

The virtual company:
A telecompany might or might not eliminate physical plant and certainly for a service oriented business, but it starts out by eliminating in-house staff the way the online store eliminates physical plant.

• Can a business pursue both the online store and the telecompany approach? Yes, and then it becomes a virtual business.
• And I add as a special case that I expect to see become a lot more common, one possible form of virtual company would be where a group of business partners come together short-term to assemble a time-limited business enterprise with minimal physical infrastructure or fixed operating expense, to capture perhaps fleetingly short term emerging opportunity, to disband and move on the to the next opportunity, and perhaps with different business partners afterwards.

And with this framework of comparison in place, I turn to explicitly discuss the telecompany business model as a whole and as a unified and organized system and game plan. And with this I acknowledge a crucially important detail that up to now I have simply glossed over. In a fundamental sense there are two very distinct business model approaches that both fit the telecompany pattern:

• The costs constraint telecompany model, with its focus on limiting fixed operating expenses, and
• The shifting opportunities-oriented telecompany model.

I am going to explicitly discuss these two business models in my next series installment. Meanwhile, you can find this at:

• Guide to Effective Job Search and Career Development – 2 (as a supplemental posting),
• Outsourcing and Globalization and
• Macroeconomics and Business.

Telecommuting and the marketplace transition to the telecompany 1 – defining the term and putting this business model into perspective

Most of my postings to this blog end up being listed in just one of my topic area directory pages. Some are applicable to two of them and serve as cross-over points that help to connect them. A few are in fact deeply connected with the topic areas and lines of reasoning that I have been developing in three of my directory pages. I have decided to post this blog installment and the series that it begins, to three directories:

• Guide to Effective Job Search and Career Development – 2 (as supplemental postings),
• Outsourcing and Globalization and
• Macroeconomics and Business.

But in a fundamental sense this begins a linchpin series for all that I have been writing about in this blog as a whole, and it in fact belongs in essentially all of my topic area directories here. So that selection of three was somewhat arbitrary.

Telecommuting is a well-established workplace option and both for businesses and their operational practices, and for individual employees as they map out career paths and take the steps necessary to pursue them. The same can be said of consulting, and for both in-house consulting and work as a third party, independent-agent consultant. I have been writing on an ongoing if periodic basis about both of these increasingly important topic areas, and about the trends toward their business-practice mainstreaming and across many industries. See for example:

• Working On-Site, Telecommuting and Beyond and
• My series: Consulting Assignment Life Cycle at Guide to Effective Job Search and Career Development – 2 as postings 225-249. And in this context I specifically note that that series’ Part 23 and Part 24 (directory postings 247 and 248) focus specifically on telecommuting and teleconsulting.

In this context I also cite an ongoing progression of postings that I have added to my Guide to Effective Job Search and Career Development and its continuation page as supplemental postings on the changing nature of the workforce and of employability. See, for example my series: Discerning the 21st Century Workforce – preparing to succeed in it at Guide to Effective Job Search and Career Development as supplemental postings 22-25, and my ongoing open letters to new graduates and job seekers as can be found in the supplemental postings listed on both of those directory pages.

I have been writing of developing and emerging trends in all of that, and even as many of them have already come to hold significant impact and for both individuals and for businesses, and for entire economies. I will look toward the logical endpoint that one of those key trends is moving towards with telecommuting and distance working, with this posting and with this series. And with that organizing, contextual framework I come to the core topic area of this posting and series:

• When a tipping point is reached where most employees in a company are not company employees – when they are free agent service providers and full or part time consultants, that business can be said to have transitioned into being a true telecompany, and with a telecompany business model.
• In a telecompany, the only in-house employees might be the owners and senior executives – and they might connect in for the most part as distant workers and telecommuters too.

This means, among other things redefining and rewriting the workplace contract, and both as a formal, legal matter and at the level of reframing the basic workplace social contract and the concept of corporate culture. And that makes this relevant to the topic flow of a directory such as HR and Personnel.

When employees work from remote locations, that can literally mean working from anywhere to anywhere as long as a sufficiently reliable and wide bandwidth connection is available. That makes this a subject for Outsourcing and Globalization. And it also makes it a topic for a directory such as Web 2.0 Marketing or Ubiquitous Computing and Communications – everywhere all the time with their focus on information processing and sharing, and on communications and connectivity

The third directory that I chose to add this series to is Macroeconomics and Business – though while that is a valid choice I did find myself torn between selecting it and opting for inclusion in Business Strategy and Operations – 2. And with that point made and citing that many directory options as appropriate for this series, I expect to have proven my point that this is a linchpin series that I am starting here. But up to here I have only touched on the broad-based nature and significance of emerging telecompanies in the overall discussion that I have been pursuing in this blog. Now I have to flesh out the details as to what telecompanies are and why they are going to become so important moving forward.

In my next series installment I am going to at least begin a discussion of the telecompany business model, and of how operations and strategy would specifically play out in that type of business context. Meanwhile, as noted above, you can find this at:

• Guide to Effective Job Search and Career Development – 2 (as a supplemental posting),
• Outsourcing and Globalization and
• Macroeconomics and Business.

Regulatory oversight, prudent business practices and risk allocation – 3: planning and execution

This is my third installment in a series on best practices for developing and managing a business more effectively in the face of outside regulatory challenge, and with a goal of offering a best practices approach for competitively operating in a regulated environment (see Part 1: setting a foundation for discussion and Part 2: preparing for impending change.)

At the end of Part 1 of this series I proposed three points of discussion that I would develop this series as a whole around:

1. Planning for upcoming regulatory change, and knowing precisely what your business will face and where it will have to do things in new ways,
2. Strategically and operationally planning how best to change to accommodate that in satisfying regulatory requirements, and
3. Identifying and acting upon processes and functionalities in your business where you can still create opportunity, where your business can still be flexible and agile.

I looked into the first of these points in Part 2, outlining how knowledge of impending regulatory impact can at best be partial and imprecise as regulatory law is interpreted and enforced by regulatory agencies and in the courts. And in the course of that, I brought in and utilized a business model taxonomy distinction that I have found of real help in thinking about and planning for more effective business strategy and operations: strategically fragile and strategically robust business systems (see Operational Failure Rates, Feedback and Remediation, and Risk Remediation Processes 3.) I ended that installment by noting that “with that, and starting with a non-deterministic, probabilistic understanding of the issues glossed over in my first point, above, I turn to points two and three. My goal in this series installment is to do that. And I begin by considering the costs and benefits tradeoffs of flexibility with its potential for creating duplicate and overly complex systems, and lean agility which in a pure form lacks the flexibility of the type possible from maintaining alternatives, some of which might never have to be used.

• I have written a number of times about the merits of lean and agile, but note here that this cannot simply mean trimming everything to a bare bones minimum and without regard to contingency planning or its imperatives.

The challenges of regulatory compliance that can only begin with maintaining more robust recordkeeping systems, serves in this as simply one example of many possible, where lean and agile and the drive to economize and to focus resources more effectively in the here and now, has to be tempered with a longer term awareness of the potential for the unexpected, and for a need for plan B options and capabilities.

Following through in terms of this example but with an awareness of wider applicability of stated principle in mind, I offer a basic approach to finding a meaningful and effective balance between lean and agile and minimal, and robust with its greater options but with its greater operational and systems maintenance expenses and complexities too.

• Start by identifying potential choke points where you would need robust systems alternatives, and where they would be less likely to be required.
• In a regulatory context and where interpretation and enforcement might vary and be open to potential interpretation, where would a stricter and more limiting interpretation of regulatory requirements create potential problems or challenges?
• What systems might have to be flexibly adaptable to meet stricter interpretations and vigorous enforcement?
• What physical plant systems and operational process resources would have to be in place to meet them, and what of that could be developed and added in when and if needed? And what would make the most sense to have pre-planned for and at least partly in place?
• Here, being ready for change and adaptation with awareness of where that might be needed can become a source of immediate competitive advantage and certainly when competing against other businesses that are caught more off-guard by sudden new requirements.
• This, I add can include being ready to access and utilize pre-vetted third party resources as well as preparing for possible contingencies through strictly in-house planning and resource development and allocation.

I am going to finish this short series at this point, but add that I will be returning to it and to the wider issues raised here in future postings and series too. Meanwhile, you can find this and related postings at Macroeconomics and Business.

Thoughts of China for after its 2012 power transitions 6: welcome to the goldfish bowl, continued

This is my sixth installment in a series, in which I seek to outline and discuss some of the challenges that China’s new leadership will face as it assumes power coming out of their 18th Party Congress (see Macroeconomics and Business postings 122 and loosely following for Parts 1-5.)

I wrote and uploaded the first five installments to this series in advance of the scheduled November 8, 2012 opening of this once in ten years event, and with intention of waiting until after the close of this Party Congress before writing anything further to add to them. But I find myself sitting down to write this installment before the opening day of this formally ceremonial Party affirmation and power transition too, actually writing this note on October 27, 2012 – noting that it will actually go live to the blog well after that starting date. That means circumstances might very well develop that would bring any conclusions I reach here into doubt. But I add that in a fundamental sense, this installment is going to be about secrecy and uncertainty. And this is about the fundamental lack of transparency in government in the People’s Republic of China as power struggles play out behind the scenes, where real and binding long-term decisions are made. And in that I state with absolute certainty that no real decisions will actually be made at the 18th National Congress of the Communist Party of China. Any real decisions expressed there will simply be public statements of the public-consumption versions of decisions already made and agreed to, behind the scenes.

I write this posting and the above statement thinking back to the old Soviet Union, and the challenges that Kremlinologists had in trying to understand let alone predict what was happening behind those closed doors and high walls. But I also write this in the age of the internet, and when very little can be truly hidden, at least for long and when any significant part of it can be caught on a cell phone camera or shared through social media – and even just briefly before being taken off-line again by censors. And the reason why I chose to add to this series now in anticipation of the 18th Party Congress as I write this, but as old news by the time it goes live, is that a fundamental important event has just taken place, which I suspect will change the balance of power going into those behind the scenes real-power negotiations.

I begin with a point that I touched upon in Part 5 of this series. I noted there how this current leadership transition is taking place in the context of a power struggle, with at least two major competing factions that seek to shape the Politburo Standing Committee and China’s leadership to come. One is led by the outgoing president of China, Hu Jintao and the other by his immediate predecessor in office, Jiang Zemin. And with this I note what should be an obvious point. When one of China’s leadership elite steps down from official, public office they do not simply disappear. They become powers behind the thrown, and holders of less visible, but equally profound power to that which they had held while still in office – unless they are somehow discredited and pushed into irrelevancy.

Hu Jintao and his allies such as Wen Jiabao have been actively preparing for their futures as power brokers and sources of influence through a series of actions taken over the past year and more, and with that definitely including promotions and career advancements pushed through. As an example if that, and with a goal of securing backing from the leadership of China’s People’s Liberation Army, they have pushed in support of China purchasing an old aircraft carrier and refurbishing it as a centerpiece to a new and emerging open ocean naval capability. This comes at a time when China is becoming increasingly vocal in claiming what amounts to ownership of the South China Sea and to waters between China and Japan. And they have also promoted a series of senior military officers to four star rank. I note here as a reminder in this context that the People’s Liberation Army of China is both a large standing military force and an industrial and business enterprise powerhouse. So favorable influence among its senior ranks, and a reputation for supporting fulfillment of its goals could be seen as creating a basis for long term influence and power to come.

And as a specific example of how important that is for China’s military leadership I note that while China’s overall economy is slowing down, it is unlikely that the People’s Liberation Army will see any reductions in its budget as it seeks to develop new air and naval power capabilities, and cyber-warfare capabilities that would be expected to match those of any potential foe.

And with this I turn to the specific event that has prompted me to write this posting at this time.

• Wen Jiabao has worked very hard over the years to build a reputation as a man of the people, and as a leader who is completely opposed to special privileges or advantage for those in authority. But just days before the opening ceremonies that will mark the start of the 18th National Congress of the Communist Party of China, the New York Times and other outlets have exposed a news story outlining in detail how Wen’s family and friends have amassed the equivalent of billions of dollars in personal wealth through their connections and because of his power and influence. And I add that these stories only touch on one half of this overall story as family and friend holdings in less visible businesses owned by the People’s Liberation Army – a significant fraction of the overall Chinese economy, are not addressed in these reports.
• This story was developed by outside news agencies and reporters, but the timing of this is more than slightly curious – at a time when unfavorable coverage and reputation damage would hold the greatest value for those who oppose Wen and his allies.
• China’s all but certain incoming president, Xi Jinping is by all appearance more actively supported by Jiang Zemin and his associates than he is by Hu Jintao and his associates. A real scandal, putting Wen into a similar position to that of Bo Xilai could essentially end his career and influence and weaken any Party faction that he is aligned with. And I note in passing in that context that Bo was pulled down into disgrace for governmental corruption while promoting himself as an anti-corruption champion of the people – just as Wen has promoted himself as an anti-favoritism champion of the people. I am sure I am not the only one to have noted a parallel there.

I admit that I assume that virtually everyone in China’s most senior leadership is caught up in their country’s Crown Prince Party, and as both a recipient of special opportunity and wealth, and as a provider of such advantage as a route to still greater personal power. I assume that many in China also view their leadership with a questioning eye in this regard. Still, the timing of these revelations is interesting, and it might be quite significant too, and certainly as further word of all of this works its ways through the gaps and cracks in China’s internally facing Great Firewall.

I add that to further complicate matters here, while Wen and Hu are close allies they compete against each other politically too. I am certain to come back to these and related issues in future postings and series. Meanwhile, you can find this posting and related at Macroeconomics and Business.

Regulatory oversight, prudent business practices and risk allocation – 2: preparing for impending change

This is my second installment in a series on best practices for developing and managing a business more effectively in the face of outside regulatory challenge, and with a goal of offering a best practices approach for competitively operating in a regulated environment (see Part 1: setting a foundation for discussion.) And at the end of Part 1, in in anticipation of this posting I intentionally set up what is sometimes referred to as a straw horse – a point of argument that from internal flaws cannot stand up to scrutiny, at least as specifically stated. Specifically, at the end of my first series installment I posited three points for further discussion:

1. Planning for upcoming regulatory change, and knowing precisely what your business will face and where it will have to do things in new ways,
2. Strategically and operationally planning how best to change to accommodate that in satisfying regulatory requirements, and
3. Identifying and acting upon processes and functionalities in your business where you can still create opportunity, where your business can still be flexible and agile.

And the problem in this is built into the first of these three points and how it is formulated. Quite simply, it is never in the real world going to be possible to know precisely what any business will face and in all details moving forward. Business strategy is, or at least should always be about planning for contingencies and with allowance and flexibility built in for the unexpected. And starting this posting from that point, I invoke a basic strategic systems taxonomic distinction that I have been discussing and developing for its implications in other recent postings: the concepts of fragile and robust business strategy (see Operational Failure Rates, Feedback and Remediation, and Risk Remediation Processes 3.)

• As regulatory oversight and its interpretation and implementation through the courts and case law are a part of the context that every business operates in, in their marketplaces, effective businesses are the ones that proactively seek to develop and maintain a strategic robustness in the face of change and uncertainty coming from regulatory law and its requirements.

So effective businesses plan for what is known and predictable in meeting their regulatory requirements, and given the timeframes involved in developing and implementing these laws that can mean strategically planning from a fairly certain basis of understanding, and for many if not most of the key details that will have to be operationally addressed. But with the unpredictable challenges coming from unexpected court interpretations that can tighten or redirect or loosen or even invalidate regulatory law provisions, effective business strategy is always left open to the possibility of having to develop a Plan B approach and even on the fly.

To take this out of the abstract, I would cite an all too evident strategic fragility as businesses would address regulatory oversight and due diligence concerns, shown by way too many financial institutions going into the Great Recession. Specifically, I would cite how regulatory law was outdated and weakened governing the assembly and structuring of bundled investment instruments, for their overall risk levels and note that much of that recession arose when so many financial institutions and their investors found themselves holding toxic investments, overbalanced for high risk content. And these firms were all way over-leveraged, and the investments that they offered in way too many cases were found to be collectively and as bundled investments, worthless. The “all too evident” of that, unfortunately only became clear in hindsight as the house of cards collapsed. And the strategic fragility in this and its operational consequences stemmed from the limited and even purblind ways in which these institutions made use of historical trends data to assess risk in contexts that their historical data could not address. So the points I raise here in this series are important to individual businesses as they seek to create long-term and sustaining strength and marketplace capability. But on a larger scale they are also important to entire industries and marketplaces and even to entire economies. For the financial industry collapse and the Great Recession it created, we will all be dealing with long term consequences for years to come, and even as the recession itself has been formally over for several years now. (I am planning on addressing this example in greater detail in an upcoming posting in a separate series.)

And with that, and starting with a non-deterministic, probabilistic understanding of the issues glossed over in my first point, above, I turn to points two and three. Meanwhile, you can find this and related postings at Macroeconomics and Business.

Thoughts of China for after its 2012 power transitions 5: setting the stage for 2013 – 4

This is my fifth installment in a series, in which I seek to outline and discuss some of the challenges that China’s new leadership will face as it assumes power coming out of the 18th Party Congress, with that transition formally beginning in the autumn of 2012 (see Macroeconomics and Business postings 122 and loosely following for Parts 1-4.)

And I want to start this posting by opening acknowledging what should be the obvious: I may have something of an idea as to the identity and nature of at least some of China’s challenges but I have to guess like anyone else as to what China’s leadership will do next, and both in response to internal Party pressures, and in response to the more external crises and challenges they face. So when I wrote my third installment in this series, I predicted that Bo Xilai would be tried, convicted and sentenced and before the opening of the 18th National Congress of the Communist Party of China. Quite simply, my reading of this news story has been that this represents a scandal that China’s leadership needs to move past and definitively and as quickly as possible. Then a few days later, Bo – still kept sequestered and out of sight, was publically vilified in China’s official news platform: Xinhua and he was publically stripped of his Party membership, amidst accusations that he has in fact been a hardened criminal for many years now.

The public vilification and official distancing began, and Xinhua’s coverage presented a lengthy laundry list of crime and malfeasance and of possible criminal charges that Bo is likely to face. If the Party and its leadership can separate themselves from Bo and cast him as a rogue outsider and as not being representative of the Party or its principles, that would go a long way towards neutralizing this scandal for them going into their National Party Congress. And with that, and to keep this story from bubbling out again and immediately before the Party Congress, my guess was then, that any trial itself would be postponed until later and probably until early next year. Public vilification and both through Xinhua and other channels would continue, further widening the gulf between Bo and his cronies, and the Party and government of China and their leadership.

I am writing this on October 2. This posting is set to go live on November 5, just a few brief days before the opening of the 18th National Party Congress. Right now I do not know if Bo Xilai will face his show trial before or after the Party Congress and my guess is that even China’s leadership is at odds over that and undecided – at least as of today in early October.

Right now, China has at least two major factions that are vying for supreme Party influence and leadership: one led by China’s current and soon to step down president, Hu Jintao and the other by his immediate predecessor in that role, Jiang Zemin. And as a third force here that has to be taken into account, I also include the senior general officers and military leadership of China’s People’s Liberation Army.

• Hu has been weakened by a number of recent events, China’s current and worsening economic slowdown only constituting a part of that (e.g. his recent loss of Ling Jihua as a right-hand man through scandal: see Part 2 of this series.)
• Jiang is still influential, and in fact the man most likely to succeed Hu in supreme leadership, Xi Jinping can be considered one of his protégés more than one of Hu.
• And the People’s Liberation Army has been quietly but forcefully vying for increased voice and power for some time now, and if for no other reason, in response to the apparent weakening of Hu and the potential for creation of a power vacuum that this could lead to.

So the problems are fairly clear-cut, or at least some of them are, as viewed from the outside. Responses and immediate responses during this period of challenge are a lot less so. And with that as background analysis, I turn to the topic of this posting: the flip side of the challenge that China faces from its preferentially advantaged princes: the very public challenges faced by China’s peasant masses in contrast.

In a fundamental sense I began writing about this side to this story in my earliest postings to this blog about China, with my series: The China Conundrum and its Implications for International Cyber-Security (see my Ubiquitous Computing and Communications – everywhere all the time, postings 69 and loosely following.) I began that examining how China seeks to limit and control the online conversation and its citizen’s access to information, and I found myself essentially immediately delving at least as much if not more so into why they would try to do this. And a widening maze of reasons began to come into focus and one of the most pressing of them as sources of impetus for silence, was the potential that members of China’s populations might begin to openly and publically share of their own stories (see for example, Part 1 of that series. One of the incidents that I briefly touched upon there was an incident in which numerous public buildings, including public schools collapsed during an earthquake and many, many children died as a result. Privately constructed buildings did not experience such widespread and catastrophic failure – and it turned out that these schools and other public structures were assembled using knowingly inferior and sub-standard materials and with corner-cutting in the actual construction. And the rich and powerful who had landed those construction contracts for the most part walked away.

China’s peasants have faced the consequences of environmental disasters from reckless strip mining and open pit mining, and from resulting contamination of their air and water supplies. They have faced injustice from corrupt local and provincial officials as they make special deals with their cronies, and as members of the general public are denied anything like real legal recourse. And that ongoing story and the prospect that more of China’s citizens realize they are not alone in this, has been one of the driving forces behind their Golden Shield Project, and system of online censorship from the beginning. But with China’s hundreds of millions of cell phones and with the gaps and leaks that all but functionally define their Golden Shield: their Great Firewall, stories do get out and spread. And with China’s current and still growing economic slowdown, that includes word of labor strikes and of the conditions that lead up to them.

Right now, during the lead-up to China’s 18th National Party Congress, that includes by way of example some very disturbing strikes at factories owned by Foxconn, in the People’s Republic of China. Foxconn, it should be noted is a multinational electronics manufacturing company, headquartered in Tucheng, New Taipei, Taiwan – a Taiwanese company. Mainland Chinese workers who staff Foxconn facilities in cities such as Shanghai rose up in protest after some very publically visible suicides from workers who took their lives because of the conditions under which they were living and working.

Publically visible labor strikes in which workers take action, and both against their employers and against police forces, have not been limited to this one set of strikes, or to labor unrest in general. And China’s current economic slowdown has only exacerbated this as more and more members of China’s public begin to see the disparities between have and have-not in a new light and as more widely played out across their country. That shared vision is a driving force behind China’s responses to its princeling scandals. And all of this is taking place as they approach their once-in-ten-years power transition.

All of this, and both in this series and in the postings and series that have preceded it (see Part 1 for references), and the forces and factors that led me to white all of that come to a head now for China’s leadership and for their in-practice systems of governance. What path will China’s new leaders take in addressing all of this? China’s Politburo Standing Committee currently has nine members, but with power consolidation that might be reduced to seven coming out of their Party Congress. Certain Party members seem fairly certain to gain positions in that body, but with all of the challenges and uncertainties that China’s leadership currently faces and with the political jockeying for power taking place within China’s leadership, there is still a great deal of uncertainty in that – and I would guess at least some for China’s leaders even if much more so for any outside observers.

There is an old and reportedly Chinese curse that is often phrased in English as “may you live in interesting times.” We are living in interesting times, and I expect to be writing a lot more about all of this, and certainly as China completes its Party Congress, and moves on from decisions publically made and stated there. Meanwhile, you can find this posting and related at Macroeconomics and Business.

Thoughts of China for after its 2012 power transitions 4: setting the stage for 2013 – 3

This is my fourth installment in a series, in which I seek to outline and discuss some of the challenges that China’s new leadership will face as it assumes power coming out of the 18th Party Congress, with that transition formally beginning in the autumn of 2012 (see Macroeconomics and Business postings 122 and loosely following for Parts 1-3.)

I have been writing in this series about a set of challenges that China’s new leadership will face. And in the process of that I have been discussing a fundamentally underlying challenge that I would argue to be central to making all of the others so difficult to resolve: the increasingly visible fault lines in their society separating their haves from their great majority of relative have-nots. And in this I have focused on the privileges and excesses of their Party connection-favored princes and of their de facto Crown Prince Party within China’s overall Communist Party.

I have specifically focused on princes of Chinese Communist Party realm who have created real scandal and discord, and as China’s leadership and the Party as a whole approaches their once in ten years power transitions of a National Party Congress. In this, I focused by way of example on Ling Gu and his father Ling Jihua (see Part 2), and on Bo Xilai and his father Bo Yibo. And in both cases these sons have aimed a harsh spotlight on China’s claims to having a modern government and systems of law and governance in which citizens have equal and open rights, and both under law and in practice.

The 18th National Congress of the Communist Party of China is now set to open on November 8, 2012 and at a time when their economy is slowing and they have to present themselves to the world in the face of scandal and embarrassment from the ranks of their privileged and well-connected. And this is particularly challenging for China’s leaders, new and out-going, and for their society as a whole given the approach that their underlying culture takes towards scandal and toward disclosure of uncomfortable or embarrassing information.

And this is where these stories somewhat in the news, and much more so in social media and public discussion come to a head approaching November 8 and the days and years to follow. The heir apparent for China’s top leadership position coming out of their upcoming Party Congress is Xi Jinping, son of Xi Zhongxun and a true prince of the realm too.

I initially wrote about Xi Jinping in the context of China’s upcoming Party Congress in my series China in Transition (see Macroeconomics and Business, postings 63 and loosely following for that series, and particularly its Part 1 for a brief biographical note about Xi Jinping.) I add here that I wrote that at least in part with an orientation more or less along the same lines that Xi and his supporters might take in presenting him as more a man of the people who has lived and worked with China’s rural peasants, than simply as coming from a princely lineage.

That is a crucially important point, and particularly for any potential leader who carries a princely imprimatur. Modern China pays homage to the nobility and worth of its peasant masses, as carrying the true spirit of the country and of Party. At the same time it has and holds dear to its princes: founders and children of founders of Communist China and heroes of their cause. And Bo Xilai and his story raise points of comparison in that, that are very troubling.

• Xi, as noted in my earlier biographical notes, lived and worked as a peasant laborer in Yanchuan County, Yan’an while his father was out of favor and out of power, and he went on to request a position out of the political capital of Beijing as Party chief of Zhejiang province. And after that he went on to serve as Party chief in Shanghai. So Xi Jinping and his supporters claim, and with some genuine legitimacy that he is more than simply a pampered prince; he has actually accomplished on his own and received recognition for that, and certainly during his early years when he built a foundation for a possible career path to come.
• But Bo Xilai also holds claim to being a prince, son of one of the founding leaders – but also a man of the people who has lived and worked with and as a peasant. Like Xi, Bo was the son of a prince of the realm who fell out of favor, leaving him to prove himself or not on his own merits. Even after his father’s release from prison he worked in a factory before being accepted at and attending Beijing University which he entered by public examination on the merits of his performance in the National Higher Education Entrance Examination, or Gaokao. He did not get in by exemption where princelings often do. So whatever else might be said about him, if Xi Jinping cannot simply be labeled as a princeling then Bo Xilai cannot be either.
• But the developing narrative of denunciation of Bo is already doing that. And in what has to be seen as an inevitable consequence, comparisons are being made and at least some voices are now beginning to raise questions about Xi’s claims to being grounded in the common man and in China’s peasantry. And this brings me to a crucial point. The scandals I have been writing about in this series are not so much a problem for their own more local events and narratives, but rather for the comparisons they invite as they shed unfavorable perspective on China’s elite in general.

I almost never write two consecutive postings to a single series, to go live on consecutive days but I am making an exception here. I am going to follow this posting tomorrow with a look at China’s economic slowdown and at the flip side to the favored prince side of this story – with a discussion of challenges that are faced by the peasant class and the public in general of China. And yes I will do that through discussion of at least one major scandal that has recently erupted into public awareness in China, highlighting their all too often plight. Here, the real impact of the princely scandals comes from the contrasts they highlight when held up against the lives and circumstances of the vast majority of China’s citizens. Meanwhile, you can find this posting and related at Macroeconomics and Business. And I also recommend reviewing the postings and series concerning this that are listed in Part 1.