Platt Perspective on Business and Technology

Putting change in perspective 1 – thresholds of change and disruption

Posted in business and convergent technologies, strategy and planning by Timothy Platt on August 22, 2013

I write a lot about change in this blog, and about its impact in the workplace and for overall business performance. This is important, but at the same time it is necessary to note that change, and certainly fundamental change are not always readily apparent when taking place, and certainly in its early stages. So this posting is not so much about the consequences of change or of creating or responding to it. This is about seeing and understanding change as it is happening and it is about knowing when you are looking at minor fluctuations, fundamental trending change or groundbreaking disruptive change – and what they functionally all mean. And I begin this posting with a consideration of what might best be thought of a business’ random activity level fluctuations.

• Few businesses exhibit precisely the same cash flow every month and for both expenses due and paid, and for revenue due and coming in.
• Few hold all areas of their inventory, and for both internal-use supplies and resources and for salable products completely steady with items leaving the shelf replaced one to one with new ones added back in.
• Businesses experience predictable seasonal and non-seasonal shifts for all of this and more as customer needs shift up and down and as sales and purchasing levels change.
• This is not all, I stress, about meeting external marketplace needs. Operational and other in-house expenses fluctuate up and down too as regularly recurring and more one-off purchases are made in support of the business.
• And no business exists in a vacuum in any of this. Markets change and consumer demand fluctuates at least some for overall purchasing demand and even for product and service offerings that are reliably steady sellers.

For some businesses, and for some industries and marketplaces this background fluctuation can be relatively minor. For others, this can mean significant swings and for both the revenue and expenses sides of the ledger. Impulse purchase-driven markets and businesses that specialize in impulse-buy and faddish inventory offerings come immediately to mind for me there, where effectively managing inventory and profitability can mean constantly monitoring for even minor changes in sales levels, and for essentially every stock keeping unit (SKU) in the store and certainly for any subject to more fad-driven sales pressures.

To clarify a point of possible confusion there, any single impulse purchase sales item SKU might in and of itself fit a non-random sales curve pattern and not fit a random fluctuations model of the type that I am discussing here on its own. And in fact it is very unlikely that the sales with time graph for any one SKU in inventory would fit a random fluctuations pattern statistically. But in aggregate and across a perhaps very broad inventory of sales items the overall result can precisely fit a random fluctuations model – even if one with significant potential for large overall shifts in the business’ financials from any given reporting period to the next – and certainly on any short timeframe. An effective business model here would seek to level out these peaks and toughs in selecting and offering what in aggregate would create a steady business.

• What is the distinguishing feature that would distinguish the behavior of any one impulse-buy or fad item and its sales curve from the combined sales curve of the business as a whole with its overall sales, besides simple differences in overall scale?
• The individual item would show sales level shifts that follow a specific trend and certainly for true fad-driven sales items. And this would not be a consistently recurring background trend of the type expected, for instance with routine seasonal consumer preferences and sales shifts.
• Any novel or unexpected trend would have to develop to a level of activity and for a sufficient duration to stand out from this more predictable and standard background fluctuation, for it to be noticed as a new and emerging event.

I specifically follow through on this explanation in terms of my high background noise example, but the basic principle would apply for any business with its routine sales and expenses fluctuations. It is just that when a business routinely sees only very minor fluctuations in its overall business performance, smaller deviations from that can be easier to see.

I have written this up to here entirely in terms of a business’ financials and in terms of its cash flow patterns. That means I have written this entirely in terms of reactive business systems and strategies. I am going to continue this discussion of identifying change in a next series installment, where I will take a more 360 degree approach, and with a goal of both reactively identifying significant change faster and earlier, and proactively identifying where and when it is likely to develop. And after that, I will turn to consider notable change that does not simply reflect ongoing business as usual, and truly disruptive change that might even call for fundamental change in the business itself. Meanwhile, you can find this and related postings at Ubiquitous Computing and Communications – everywhere all the time 2 and at the first page to that directory. And you can also find this and related material at Business Strategy and Operations – 3 and at Page 1 and Page 2 of that directory.

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