Platt Perspective on Business and Technology

Rethinking exit and entrance strategies 6: crisis as a transition demanding challenge 5

Posted in strategy and planning by Timothy Platt on January 17, 2016

This is my sixth installment to a series that offers a general discussion of business transitions, where an organization exits one developmental stage or period of relative strategic and operational stability, to enter a fundamentally different next one (see Business Strategy and Operations – 3, postings 559 and loosely following for Parts 1-5.)

This is also my fourth series installment in succession to discuss single points of failure, where I divide this general form of event into two at least largely distinct categorical types:

• Operational single points of failure (in Part 3 and Part 4), and
• Strategic single points of failure (in Part 5.)

And I concluded Part 5 stating that I would continue its discussion here by at least briefly discussing the role of timing in all of this, and then concurrent and sequential causality as these concepts apply here too. And I added that I will discuss the differences in practice between event analysis while an event is still actively occurring, and event analysis as a post hoc, after the fact learning exercise. And then with all of this discussion of single points of failure and of due diligence analysis of those types of challenge laid out, I will conclude my discussion of crisis as a cause of business transitions. Then after that I will return to reconsider growth and scalability, and business transitions in non-crisis contexts – including more intentionally planned for and sought-after transitions. But I start all of this with timing and with an at least somewhat more detailed consideration of causality per se in all of this.

• You can essentially take it for granted that single points of failure, and suddenly emergent problems in general will arise and present themselves at an at least seemingly worst time – every time.
• This makes sense, because single points of failure, whether primarily operational or strategic for root cause, are by definition unexpected. They are not explicitly prepared for or even identified as possibilities in advance of their erupting, and usually in full force in the middle of your business and in the middle of crucial business processes that you need to be able to carry through upon and now, in order to meet basic business needs.

I write in this blog of lean and agile businesses as a business model goal, and even as a business model ideal. I also write of the urgent need for effective due diligence and risk management systems and capabilities, which by their very nature means adding in and maintaining selectively considered redundancies and back-ups, and capabilities that are held in place more for insurance purposes than for day-to-day use. And as a part of this ongoing flow of narrative I have also at least briefly, occasionally touched upon the issues of knowing when a given type and level of extra is prudent and even necessary, and when it is bloat. A key to understanding that distinction is in whether a given “add-on or extra” is strategically connected into your overall system and systematically maintained and updated there as needed to keep it due diligence and risk management-ready, or whether it is simply developed and maintained because it can be, or because it always has been – and on the basis of momentum alone. I pick up on the issues of identifying strategic reserve resources from bloat here again, this time from the perspective of timing:

• Effective risk management reserve resources are selected and maintained as insurance against the in-principle predictable and the in-detail unpredictable,
• And if not for specific potential breakdown points in your business systems, then for points where consequences are likely to significantly erupt because of failure at them.
• And effective reserves offer a measure of breathing time, in which you can course correct and remediate before the full impact of a single point of failure can manifest at those break-down points.

Let me take that out of the abstract by framing these issues in terms of a more specific business process context, where “reserves” means physical assets. Reserves can and do include back-up and emergency use processes, and at least potentially a wide range of other resources as well, but I at least begin addressing this in a simplest case scenario. You have a small manufacturing business and you employ a just-in-time, or lean manufacturing approach in order to keep the level of available capital that you have to keep tied up in materials and parts inventory for your production lines, to a minimum. This means keeping more of your potential working capital liquid and more immediately available for other use. And that means your business can be more agile and responsive to changing needs as marketplace demands for your various end products shift, and as your need for parts and materials to manufacture them do accordingly too.

In an ideal world where every business and every business process runs optimally, and always and with no problems or exceptions, you might even be able to operate with essentially no stored inventory at all, and with resources needed for your production lines on a given day arriving the day before they are needed or even that day itself. But delays and other real world problems do occur and with predictable ongoing reliability. And a slowdown or breakdown anywhere in your supply chain system might come to manifest itself as impacting on your business in the same one place: your most productive, business critical assembly lines,

• And whether this ultimately stems from a problem in third party produced parts manufacturing that you rely on,
• Or the production and processing of what for you are your crucial raw unprocessed materials that you would build from,
• Or whether this challenge arises as a shipping problem somewhere upstream of your business in the supply chain,
• Or even as a problem gaining entry clearance coming into the country for necessary parts, with customs slowing things down.
• And these are only a few of the possibilities that I could cite, here and just for what can collectively be seen as delivery problems.

Delivery problems happen, and for office supplies and for purchased parts and materials that would go into the production line, in payments received for manufactured good shipped out, and at times for delivery of those goods to wholesalers, retailers or end-customers. Keeping the focus here on those goods that would be used on the production line, just-in-time and lean still mean keeping some of those supplies in seeming excess in inventory. It just means doing so selectively and strategically, and according to the precise levels needed per item or resource type, and according to their availability timing constraints beyond which their absence would be critically felt on the production line. (Note: I did not even raise the issues of fluctuation in product demand and the possibility of needing more parts and materials to meet what might not be entirely predictable peak demand opportunity. The scenario that I just briefly touched on here has more complexities, many of which also impact on what would and would not be held in strategic reserve.)

It is easy to see how timing problems can be managed in this type of context where that means counting widgets and knowing how many you need to have in stock to meet your needs for at least some strategically considered minimum period of time without new deliveries. The real challenge is in knowing what supplemental or augmented processes you need, in order to give you what is essentially that same type of grace period between the emergence of a problem, and the arrival of its full consequences. And baring that type of clean problem resolution, include here processes that can limit the impact and/or duration of those consequences and aide in recovery from them.

• There is a name for what I have been writing of here: building systems so that if and when they do break down, they degrade gracefully – and in ways that support if not directly facilitate recovery.

I am going to continue this discussion in a next series installment where I will at least briefly look into the issues of selecting, designing, updating and maintaining due diligence-based risk remediation processes. And I will also discuss the issues of concurrent and sequential causality there. Then, as noted above, I will discuss the differences in practice between event analysis in its two basic forms and crisis management as a business transition point in general. Then after that, as promised above, I will return to reconsider growth and scalability, and business transitions in non-crisis contexts – including more intentionally planned for and sought-after transitions.

Meanwhile, you can find this and related postings and series at Business Strategy and Operations – 3 and also at Page 1 and Page 2 of that directory.

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