Platt Perspective on Business and Technology

Some thoughts concerning a general theory of business 14: considering first steps toward developing a general theory of business 6

Posted in blogs and marketing, reexamining the fundamentals by Timothy Platt on April 22, 2017

This is my 14th installment to a series on general theories of business, and on what general theory means as a matter of underlying principle and in this specific context (see Reexamining the Fundamentals directory, Section VI for Parts 1-13.)

I began to explicitly discuss business transaction flows and the overall business strategy and planning that informs them, in game theory terms in Part 12 and Part 13, focusing on win-win game strategy approaches in Part 12, and offering an at least initial discussion of a wider range of game strategy options in Part 13.

And as a baseline starting point for that, I focused on win-win game strategy approaches as they would apply to ongoing long-term stable businesses that operate in stable ongoing markets and in stable long-term supply chain or similar business-to-business collaborations, insofar as they enter into them at all. I offered this as a baseline business model approach for addressing a game theory approach to thinking about and understanding business strategy and operations. And with that baseline starting point at least briefly discussed, I began an at least initial consideration of other game and business strategy alternatives that would be arise from this more stable scenario as complicating factors are added in. More specifically, I widened the scope of this discussion to consider win-lose scenarios, noting how that type of approach might circumstantially offer greater perceived value, in games (business transaction flows):

• That would only be expected to continue for a limited duration of play (as for example when developing and capitalizing upon short term and even explicitly time-limited seasonal business opportunities),
• Or that would be carried out under conditions of greater perceived risk and uncertainty as to how value would be exchanged (where that, for example can mean either uncertainty as to payout, or limitations to the overall pool of value that could be paid out that would not necessarily cover all value owed),
• Or for some combination of these two strategy-shaping constraints.

More explicitly considering the first of those bullet points for its relevance to what is to follow in this posting, I explicitly note anticipated end-game strategies as they enter into this discussion here. When a player: a participating business faces an end point in what has at least become a time-limited business opportunity, would be more likely to benefit from pursuing a strategy and a game approach here, that would limit the likelihood and scale of what could become a deficit in the receipt of value obtained, as that business opportunity time limit is approached and reached. This certainly applies when considered at the level of the business as a whole, but it can also apply in functionally separate areas of a business that might individually face explicitly time-limited opportunity and even when the business as a whole is an ongoing long-term-stable enterprise that at a higher overall level pursues more win-win strategies and certainly with its long-term ongoing business-to-business and market-facing contexts.

Strategic decisions and their corresponding underlying game strategies would be selected so as to maximize opportunity and gain, and minimize likely risk and cost, and with that determined at whatever the organizational level was most pressingly in need for such consideration. And large, complex enterprises often pursue several such approaches at once.

Win-win essentially axiomatically assumes that if there is a deficit in the balance of value received on one side at any given time, that imbalance can be and almost always will be addressed and corrected for in later transactions. Win-lose is predicated at least in part in terms of there not always being that next time, value creation and exchange transaction that could accomplish this. This constitutes the basic starting point for understanding where these approaches would respectively apply. But as noted in Part 13, time per se is not always the only, or even necessarily an important determining limiting factor there.

I have been addressing this in relatively abstract terms in Part 13 and again here in the opening of this posting. But at the end of Part 13 I stated that I would address this complex of issues in more concrete terms and by at least briefly and selectively discussing a specific, real world business model example. And the one that I will delve into here does in fact call for what would become an essentially pure win-lose game strategy as participating businesses that pursue it approached the very explicitly time limited end points of their business operations and revenue generating seasons. But in anticipation of discussion to come, even a seemingly win-lose game strategy oriented business can have compelling reasons for selectively pursuing a win-win approach too. That type of strategic and operational distinction is contextually grounded and that fact emerges in the case study that I at least selectively examine here.

The businesses that I refer to are small scale seasonal ventures that seek to generate what amounts to windfall revenue opportunity starting soon after Thanksgiving in the United States and lasting up to the day before Christmas. These are ventures that are set up and run by small operation farmers and other small business owners who either grow appropriate species and varieties of pine trees on otherwise unusable land that they own, or they buy trees grown by others in this manner at local rural wholesale cost. And they then bring these product offerings to densely populated urban settings, and certainly to cities in the Northeast of the United States such as New York City. And they set up short-term retail sales outlets to offer and sell those trees at a significant markup, net of all costs incurred from doing this.

This is a short-lived business opportunity that is driven by a need to minimize waste and loss, and to create value and profit generating opportunity at all possible points. So these entrepreneurs also take the salvageable loose branches that they would have to trim off of the bases of the trees that they would sell, and other waste trimmings – waste from the perspective of selling intact tress, and shape Christmas wreaths and other marketable items out of them. And for value added opportunity they often sell inexpensive bases that a newly purchased Christmas tree could be set up in, in a buyer’s home.

Value added, supplemental sales opportunities do not end there for many of these small time-limited businesses. Maple syrup is in fact harvested in the Spring in places like Upstate New York, Connecticut and Vermont, when the sap in those trees starts flowing back up from the roots again to revive them for the warmer months ahead. But a number of these Christmas tree entrepreneurs save bottles and jugs of their earlier harvested and processed maple syrup – or obtain it at lower wholesale cost from local producers, and offer this and similar add-on items too. Maple syrup may be produced in the Spring, but it is consumed more in the Autumn and Winter, and is popular during the Winter holidays.

The entire season for this type of business venture is very brief, and the end point of Christmas day is completely inflexible and unforgiving as far as any tree or wreath or similar left-over inventory is concerned. If an item is not sold by the day before Christmas, it becomes a complete loss and with all expenses and amortized shares of costs covered by it uncovered by any possible recouping sale and even at a discounted price, and with an additional added cost of it having to be hauled away for disposal too.

How does this play out in a win-win and win-lose game and business strategy defining context? As outlined, this sounds at least at first glance like a business situation that would follow an essentially pure win-lose gaming strategy approach. But let me begin with what longer-term, can even become a legitimate win-win source of opportunity for these businesses, and for partner businesses that they enter into transactional agreements with. And in this, I simply assume that while a given seasonal sales opportunity might begin and end at very set and immutable points on the calendar for any given year, an entrepreneur who succeeds in this type of venture one time might want to come back to it recurringly and even on an ongoing yearly basis.

Even if they grow and harvest their own trees from land parcels that are best suited for that purpose and not for farming, they still might want to supplement the selection of trees that they provide from their own effort with additional trees, that have grown out to the right size and that would be particularly popular by type to the end consumer market. If they do sell add-ons such as that maple syrup too, cultivating mutually agreeable business-to-business relationships with local sources of those items might make sense to, and particularly where they have to maintain wider-ranging relationships with the local-to-them providers that they obtain these offerings from.

Plastic tree bases, to cite a different category of add-on product offering, would not in any way be locally produced or wholesale sold. So these entrepreneurs would in most cases obtain them at lowest possible per item cost and through online outlets where transactions tend to be more one-off. Different sources might very well offer the tree bases required at best per unit costs, from year to year and even within a single year if it was necessary to restock during a sales season for them.

And to add one more consideration here that is very relevant to these businesses, consider where they would set up and conduct this business, and the need for their entering into agreements with property owners where they would sell. A smart entrepreneur would seek out a more mutually beneficial agreement there, so as to secure the same location again the next year and at reasonable cost if they chose to enter into this type of business venture again. And they would make the effort to make sure that everything they did in the course of their business there was done in as clean and uncluttered, and as non-disruptive a manner as possible for the owners of that property, and I add to avoid possible complaints that might lead to fines from the city. The difference between success and failure in this type of venture is as much a matter of location as it is of anything, and of being a good neighbor and presenting a good image to prospective customers. So pursuing a more win-win game strategy there can be vital to success for all of these considerations – and even in such a tightly time-limited business venture.

Now let’s consider the more win-lose side to this. All sales are final and while everyone would be polite and friendly, all transactions would be carried off as if entirely one-off and not as a means for developing long-term repeat business opportunity with any given customer. Business-to-business relationships that were entered into that did not explicitly center around building for a next year opportunity or for explicitly protecting that year’s effort would be carried out using a win-lose approach with a focus on revenue and profits received and not on mutual exchange of value in anticipation of ultimate return of value from that. And as the season progresses and the pressures mount to sell off as much as possible of that remaining inventory, this more win-lose approach becomes paramount, to prevent loss of what profitability might have been achieved up to then.

The roughly one month nature of this business opportunity with eleven months intervening helps to drive this too, and even for entrepreneurs who return to the same locations every year to restart their Christmas sales ventures. This scenario is very different from what you would expect or find with a more standard, non-seasonal retail venture such as a bricks and mortar retail store that is built for its strength and profitability around long-term stable supply chain systems, and stable repeat business customer bases.

• Note that as briefly outlined above, even a short term business of the type considered here would use both win-lose and win-win game strategy approaches – at least selectively and even if end-game time constraints would push them to a more win-lose approach and certainly as their season is about to end.
• More stable bricks and mortar retails of the type just noted might primarily employ a more win-win gaming approach. But even they would at least occasionally find more value in pursuing a win-lose approach too. And to highlight that, I note the second bullet point form the top of this posting where I cited reasons for taking a win-lose approach in the first place: uncertainty and risk – and particularly for circumstances such as working with new suppliers and for item types that the business might or might not want to carry for any extended length of time.

In this type of business, and for this type of stable, long-term retail store, it might begin working with a new supplier and might begin test offering a new type of product line that it offers on a more test case and ad hoc basis – and then intentionally and strategically switch to taking a more collaborative, win-win approach with them if their product offerings prove themselves, making a more stable and long-term business-to-business collaboration more feasible and for both parties.

I began this discussion with an expressed focus on win-lose game scenarios but of necessity discussed mixed strategies as well, as real businesses almost always deploy both win-win and win-lose. The defining difference here is in where and how differing businesses would select and follow which of this set of game strategy alternatives, and what proportion of their overall business strategy and underlying business model would best be predicated on which of them. The Christmas sales business is on the whole more win-lose and certainly for large areas of its business operations, while the stable bricks and mortar retail store would be much more win-win oriented. But they would both strategically follow both of those game theory approaches at least where that would make the most sense for them contextually.

I am going to continue this discussion in a next series installment where I will focus on how that balance is arrived at and how it changes with time. So far I have addressed business theory at the complete-business level and at least briefly at the defined functional area/decision making level within single business organizations too. I will continue addressing general theory of business considerations at those organizational levels in my next installment too. But looking further ahead, I am also going to step back from that higher organizational level of consideration and discuss all of this from the individual employee and manager levels, and the business owner level too. And I will do so both from the perspectives of their own work and career planning and from that of how members of these groups each variously work in and support the businesses that they participate in, as they help to meet overall strategic and operational business needs. I will consider a range of possible stakeholders there. And moving outward from the single business organizational level in this narrative – which I would consider here a baseline level of consideration for purposes of this series, and this more individual participant level of involvement in these systems, I will explicitly discuss the issues raised here from a supply chain and related value chain systems perspective, and at that higher organizational level too. I will explicitly discuss business theory at a business and marketplace ecosystem level. This flow of discussion is going to call for a progression of upcoming series installments, and I offer this anticipatory note here to indicate at least in broad brush stroke terms, the basic direction that this series is headed, and certainly as of now in it. I expect to add in more elements to this narrative progression as I proceed, but this is the basic outline that I will add them into.

Meanwhile, you can find this and related material about what I am attempting to do here at About this Blog and at Blogs and Marketing. And I include this series in my Reexamining the Fundamentals directory, as topics section VI there, where I offer related material regarding theory-based systems.

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