Platt Perspective on Business and Technology

Pure research, applied research and development, and business models 16

Posted in strategy and planning by Timothy Platt on January 6, 2019

This is my 16th installment to a series in which I discuss contexts and circumstances – and business models and their execution, where it would be cost-effective and prudent for a business to actively participate in applied and even pure research, as a means of creating its own next-step future (see Business Strategy and Operations – 4 and its Page 5 continuation, postings 664 and loosely following for Parts 1-15.)

I have been discussing since Part 8, a set of possible approaches for funding the early expansion of a still-new business venture, as it enters its first real post-startup growth phase. And as I explained in Part 15, I intentionally did so from what might seem a more contrarian position: starting with at least brief, orienting discussions of four outside sourced funding possibilities, that a new business’ founders and owners might chose to develop towards and actively pursue. Then after delving into those scenarios, I finally turned to and considered the more traditionally basic option of organic growth that is based upon and benchmarked by the actual cash flows that the business itself generates, and on liquid reserves that the founders and owners of this business would be able to bring to the table themselves.

As a key building block for that line of discussion, I cited one of the most basic strategic planning tools that can be used in this type of planning exercise: a three scenario approach that would variously game out possible consequences, and therefore planning and development needs and options, depending on how smoothly events unfold for the business venture as it moves forward:

• An optimistic possible path forward in which everything proceeds smoothly and cost-effectively,
• A more pessimistic one in which at least some significant delays and other challenges arise, that would add friction and cost to a new business’ growth and development,
• And a normative development scenario that would generally fall in between the first two as listed here.

I used that conceptual framework in both discussing the organic growth scenario itself and for comparative purposes when reconsidering the outside-sourced options under consideration here. And now that I have made explicit use of this tool in all of that, I step back to in-effect challenge it, by raising and challenging a basic axiomatic assumption that is fundamentally built into it. More specifically, I challenge that tripartite business development model by more meaningfully adding in business systems friction: a macroeconomic counterpart to the macroeconomic concept of economic friction per se, and the consequential impact of faulty and incomplete information and communications capability as they would shape the decision making process and its follow-through within a business and its systems.

To repeat the obvious, this series very specifically discusses a type of business and business model that is by its very nature, is disruptively novel. Such a business would face and have to effectively deal with and resolve real challenges, and proactively where possible, where that might mean finding novel business development approaches and certainly as overall business plans are carried out at a more here-and-now tactical level. And together, this means that the owners and founders of such an enterprise, and the members of the teams that they assemble in their businesses, will face and have to deal with significant levels of unexpecteds.

This would have a direct impact on any real effort to carry out the type of planning exercise envisioned in the above-stated three scenarios approach.

• Real and significant novelty and the added uncertainty that that brings with it when planning out an unusual business model, skews what can be found from a more traditional analysis of that type, and for any possible scenario included in it,
• Where its basic three scenario possibilities more normatively tend to differ from each other for timing and level of impact, for what are largely a same set of at least mostly knowable and known working parameters.
• And ultimately, this type of tripartite modeling critically depends on the ready availability of a sufficiently complete and accurate a pool of essential and relevant data, so as to be able to meaningfully, accurately set up and analyze each of the three scenario possibilities moving forward, from it.
• The more uncertainty and the more unexpecteds that are likely to arise for a business, the more the required terms of the above bullet point will be violated, making this type of test that much less reliable and informative. And that raises specific challenges here for any new business that like a research-as-product startup or early stage business, is going to be mired in New and in the friction-creating uncertainties that that brings with it. The more friction and uncertainty that the decision makers at a new business have to deal with, the less likely it becomes that they will even begin to be able to anticipate what complications might arise, and in either a more stressed test case scenario, or even just a normative one.

The founders and owners of a business as discussed here, are not going to be able to turn to a significant precedent-based set of similar enterprises for their case study value in carrying out their own planning. They are not treading that type of well-worn path. And they are not going to have a long enough timeline based data pool from their own experience with this new business, to offer sufficient guidance for more optimally setting up and using this type of three scenario approach either, and certainly when their efforts in that direction would be benchmarked against efforts that would be made when planning out a more standard business model and its execution.

I am not arguing against using this type of business modeling and planning approach per se here, as much as I am presenting a case for supplementing it with additional testing options and considerations, that might help fill in some of the gaps that this more traditional three scenario approach would create on its own. And with that, I raise the alternative of a more precisely targeted scenario-based modeling approach for this type of business development context. And I begin addressing that by raising a basic, orienting set of determinative questions, the answers to which would help to shape those more targeted scenario options.

I begin preparing for those questions, by raising an important point of distinction. Business systems friction and the information and communications limitations that create it can be categorically divided into two roughly considered domains:

Constitutive business systems friction that arises as a matter of course, and without specific stakeholder or process-determining source, and
Focally caused business systems friction that arises from the actions (or lack thereof) of specific identifiable sources, whether that means specific stakeholders or specific business systems processes.

Think of the constitutive form of friction here, as fitting a pattern that physicists would associate with the second law of thermodynamics: a basic part of any real-world system that arises collectively from the system as a whole, as the cumulative impact of minor timing and other information development and sharing mismatches that arise within it and seemingly randomly, at least when considered individually. This can perhaps best be seen as representing background friction. And while more effective overall business policy and practice, and more effective communications and other systems disintermediation in them, as appropriate, can limit this form of friction, nothing can entirely eliminate it with that making the business essentially frictionless as an information systems and communications ideal.

Focally caused friction on the other hand can in principle be limited and even effectively eliminated, at least for the most part, by addressing and remediating its specifically identifiable sources. I assumed in the above paragraph, when citing business systems improvement, that this would be done while dealing with the more intractable problems of constitutive friction. But that said, I added the phrase “eliminated, at least for the most part” here because there is always going to be a reactive element to this type of remediation, and new sources of this categorical type of friction will continue to arise, even as older ones are identified, characterized and corrected for. And to highlight a key point of difference between constitutive and focally caused friction here, where the former arises more randomly as to specific contributing causal factors, as noted above, the later: focally caused friction arises from specifically knowable causal factors and ones that at least in principle should be specifically addressable.

The basic three scenario model that I have been pursuing here, is fundamentally grounded in what would more properly be viewed as at least being close to an idealized frictionless business, where all involved stakeholders can and do have the information that they would need in order to effectively understand and make use of the scenario possibilities in play for them. The more targeted scenario options that I have suggested here as an update to or supplement to that approach, would explicitly address friction, and in its two just proffered forms and with a goal of limiting overall constitutive friction as a whole where possible, while focusing in on and limiting or even eliminating friction that arises from focally causative sources.

• The goal there is to develop business-specific scenarios that are built around this type of functionally remediable understanding.

Focusing here on the focally caused business systems friction side of that here, as the most readily addressable of the two:

• What categorically, and for human stakeholder sources, who are the gatekeeper and other potential friction sources that a business might face, and where might they be expected to rise to a level of functional significance, for each of the three basic scenarios? And specifically for the people involved in this, who does and who does not effectively communicate with whom, and on what issues and for what types of information and with what types of delays? Think of these as context-provided stressors.
• Now what specific business processes are in place, or under development and in early use that might be responsible for an overall increase in the likely level of focally caused business friction and on a scenario by scenario basis? And what other stress or risk of stress contributors might exacerbate this, and how might they arise? Think of these factors as context-provided stressors too.
• Now think through possible and likely outside challenges that would push a business from its more ideal outcomes scenarios too, and think of them as context-provided stressors here as well.
• Go back and forth between these categorical stressor types through a set of iterative reviews to consider how they might interact, and certainly where they might do so in a synergistic manner.
• Now consider the more extreme of these stressors and certainly where one or more of the three basic scenario types might push an identifiable friction source to have profound impact. What are the wall builder/barrier creating issues that this particular business might face, that might be expected to rise to a make-or-break level of significance, were that might be predicted in advance, in anticipatory planning?
• Now, and with those more business-specific possible challenges (and any anticipatable possible positive opportunities) in mind, what would happen as far as more standard metrics are concerned if they were to arise other than normatively? … and with a normative scenario included too of course, for benchmark comparison purposes.
• Use this modified approach as a first cut exercise when making your initial planning, and certainly when facing real novelty and the increase in overall friction that that can be expected to engender.
• And use next round iterations of it, as you develop more empirical input to inform your planning, as you and your leadership team think through and refine your understanding of what issues (and their parameters) should be included, based on emerging real world experience with this new business.
• And continue this exercise until you and your team reach a consensus of understanding and agreement, or until you have unearthed and clearly come to at least workable accommodation on whatever differences emerge in your collective underlying goals and assumptions planning, so that all necessary stakeholders can at least work together in addressing mutually agreed to tasks and priorities.
• And repeat this exercise if you or others in your leadership team – or others who report to them, begin to raise concern over increasing friction in the business with information quality or availability challenges increasing.
• And repeat this if and as it starts to look like the business might be facing an emerging transition point change, as it did when exiting the startup stage per se into a first real growth phase, or for when it appears to be completing that stage with a need to move onto a next development step beyond it. Transition points represent points in time when friction issues are certain to rise in significance.

I said in Part 15, that I would break open the black box representation of the type of disruptively novel new business that I have been discussing in this series and in this installment of it. And I have in fact begun doing so here from how I added a more detailed consideration of friction to this narrative. I am going to continue that opening up process in the next installment to this series where I will address some business model-specific issues, and the challenge of knowing precisely when a business development stage is ending and a next one is beginning. And as noted at the end of Part 15, my basic goal for this series and for where to go in it from here, is to conclude the more entirely-early business development phase of this discussion as I have been offering that here, and then move on to offer a more long-term scalability perspective on these enterprises: one that focuses more specifically on research-oriented enterprises with their particular issues and as they seek to grow into larger successful businesses.

Meanwhile, you can find this and related postings and series at Business Strategy and Operations – 5, and also at Page 1, Page 2, Page 3 and Page 4 of that directory.

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