Platt Perspective on Business and Technology

Leveraging information technology to revitalize mature industries and marketplaces 9: adding in a competitive context 4

Posted in business and convergent technologies, strategy and planning by Timothy Platt on March 1, 2014

This is the ninth installment in a series in which I discuss and analyze businesses as information management systems, and in which I characterize their competitive strength and marketplace capabilities in corresponding information technology implementation terms (see Ubiquitous Computing and Communications – everywhere all the time 2, postings 273 and loosely following for Parts 1-8.)

I started Part 8 of this series with a brief and selective discussion of large chain store businesses, and particularly franchise operation businesses that share a standardized brand name. And I wrote that taking what many would consider a somewhat contrarian position, challenging the notion that big businesses and their local outlets, franchise-based outlets definitely included, always gain some sort of overall advantage from increased overall business scale. The simple fact is that they do not, and that some franchise systems in particular can be detrimental to the would-be franchise holder and certainly when compared to the overall, long-term costs and benefits of setting up a local storefront as an independent business. I then ended that installment turning to consider supply chain systems. And I continue to do so here, but from a perhaps unexpected starting point.

• At least for purposes of this discussion, the primary difference between a wholly owned chain store business operation, a brand and central operations-supported franchise system, and a supply chain system is one of ownership and oversight control and responsibility, as they are distributed throughout a larger multiple location system.
• In a centrally managed chain store business with all outlets centrally owned and controlled and with all outlet managers in-house employees, overall operational and strategic ownership and responsibility devolve back to the one senior executive team that runs this single business as a whole.
• In a multiple-business supply chain system, every participating element in this system is a separate and separately owned and run business with its own leadership, and participating businesses generally provide separate areas of expertise and supporting resource bases needed to exercise it, for the collective common good.
• A franchise system operates in an in-between gray area middle ground between these two extremes where franchise holders in effect buy contractually defined levels and types of ownership and control over location-based elements of a larger business, and receive certain equally contractually based forms of support and service from that larger business, in exchange for up-front franchise purchase fees and debt obligations, and an ongoing share of franchise operation revenue as shared profits.

It has become increasingly recognized that supply chain systems effectively compete in the marketplace against other supply chain systems, and against independent businesses that seek to operate without such support – in much the same way, a chain store or franchise system business can be and I add should be seen as competing as a single entity against outside competitors in their overall marketplaces. But at the same time, individual supply chain-participating businesses and I add individual chain store and franchise operation outlets also compete as, and as if individual businesses too, within their own multiple location systems. Turning back to chain store and franchise operations for a second in this, outlet versus outlet competition can be fierce within these organizations, with the brand owning central offices in both cases closely tracking relative business performance levels and rewarding and at times punishing accordingly. And this brings me to the question of where a business counterpart to natural selection takes place in these more complex business systems.

I wrote in Part 8 about how the ultimate unit of biological natural selection is the gene, even if it is entire organisms that do or do not succeed in perpetuating their genetic content into a next generation. And I wrote there of how it is the individual operational process, and I add the individual strategic process that are the ultimate units of competitive selection between businesses, even if it is entire business organizations that do or do not succeed and sustain themselves – or to continue the above line of argument the entire chain store or franchise business system, or the entire supply chain, insofar as they provide long-term competitive strength and advantage for their participating operating units.

This distinction, and this at times seeming conflict as to where selective value resides comes to a head in biological systems where organisms display altruistic behaviors that might at first glance seem to work against the perpetuation of their own genes, and as a repeated and recurring social response. Natural selection models such as kin selection are invoked to cover for this, where even altruistic self-sacrifice in the perpetuation of identical copies of genes held by relatives can be mathematically equated with an overall positive effort to perpetuate one’s own genes. And a more loosely formulated “what comes around, goes around” argument has also been made, at least in group selection models, for still wider-ranging forms and expressions of altruism where one organism seems to reduce its own individual natural selective fitness to preserve that of others, where a simple genetic similarity basis is not directly applicable. But it is hard to argue a case for self-sacrificing altruism on the part of one business to perpetuate copies of same-shared operational or strategic processes that both pursue. This need not be an intended goal, however for this result to occur. It only needs to be an empirically reached result as best practices prevail with time.

Is there a counterpart to biological kin selection, or group selection that would significantly illuminate the competitive selection of businesses and their underlying processes in an openly competitive marketplace? I am going to address that specific question in my next series installment, and in that context, I am going to more explicitly turn back to consider information management systems and resources as representations of businesses as a whole, and of their competitive capabilities and evolution. Meanwhile, you can find this and related postings at Business Strategy and Operations – 3 and also at Page 1 and Page 2 of that directory. You can also find this and other related material at Ubiquitous Computing and Communications – everywhere all the time 2 and at the first page to that directory.

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