Platt Perspective on Business and Technology

Pure research, applied research and development, and business models 17

Posted in strategy and planning by Timothy Platt on March 13, 2019

This is my 17th 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 1-16.)

I have been discussing a particular type of disruptively novel business and business model in this series, that would specifically realize in day-to-day and ongoing practice, the issues raised in this series’ generic title: businesses that would offer research and its informational products as marketable, value creating offerings in a business-to-business context and marketplace. And as a part of that, I offered and briefly outlined a basic business analysis and planning tool that the leadership of such a business can employ when building out and developing their new enterprise, focusing as a case in point context on planning as it would arise and play out as such an enterprise exits its initial startup phase and enters its first real growth phase as a now-profitable venture (see Part 15.)

I turned then in Part 16, to challenge one of the simplifying assumptions of that basic planning tool, by acknowledging and addressing the role that business systems friction plays in thinking through and planning the development of businesses, and particularly when:

• They are in some way disruptively novel
• And when they do not yet have a long enough track record themselves, to serve as an effective planning baseline for their moving forward.

I focused in those two postings on mapping out and planning in terms of what can be considered the consciously “known” known, and the at least categorically predictably “known” unknown, leaving out of consideration any possible unknown unknowns as they might arise too, and seemingly out of a clear blue sky. And I begin this posting by explicitly acknowledging that the more consequentially important friction is and the more the gaps in essential business intelligence and communications that create and shape that in a business, the more likely it is that you will have to assume that completely unanticipated, and even unanticipatable problems will arise too: those unknown unknowns.

Addressing that possibility in practice, means building a business with a more conservative shift added into any tripartite planning model that might be employed, and certainly when using an essentially friction-free, baseline version of such a modeling tool as offered in Part 15. So a more normative scenario as outlined in that type of business analysis, or according to a Part 16 friction-acknowledging model for that matter, would be reframed and relabeled as constituting your more optimal problem-free scenario under consideration. And an at least somewhat more stressed scenario, at least for overall levels of added costs and delays and other challenges, would become the de facto categorically predicted normative scenario in this type of analysis too. And all of this means planning and building for larger cash reserves and for more accommodating scheduling and other flexibility where possible, to account for and to be able to operationally accommodate extra performance stressors, when and as they arise. Added friction demands greater flexibility and agility and an allowance for resource scales that can accommodate and even directly facilitate that.

From a business to customer (here other businesses) perspective, this brings to mind the old adage about the positive value of under-promising and over-delivering. Think of the approach that I offer here, from the perspective of the business as a whole and from that of its complete business process cycles, as it relates to and connects with its markets and other pertinent outside contexts.

And with this note added to flesh out and complete my line of discussion from Part 16, at least for purposes of this series, I turn to consider a couple of specific topics that I raised at the end of that installment and that I said I would at least begin to address here, with:

• Some business model-specific issues and the challenge of knowing precisely when a business development stage is ending and a next one is beginning.

I begin doing so with the first clause of the above bullet point. My Parts 15 and 16 discussions and this posting’s continuation of that narrative up to here, have been largely generic as most of what I offered in that would apply to essentially any new or young business – and certainly where that enterprise seeks to break away from its competition and potential competition by offering at least something new and novel as a product or service, or when it seeks to stand out by operating in a new and novel way in creating and offering what it does bring to market. So my initial goal here is to more specifically consider research-as-product businesses themselves: here as tripartite planning models in general might be applied specifically to them. And I begin doing so by addressing an assumptions-riddled, though commonly used paradigm for thinking through and understanding businesses in general: their division into cost and profit centers.

I have raised and considered this point of distinction a number of times in this blog, and begin doing so again here by briefly noting a few here-relevant details that I have already delved into but that merit at least repeat acknowledgment here too:

• Costs, as cited and considered here, should not be limited entirely to cash flow and direct monetary value: red ink or black, even if those considerations are of significant importance in this type of analysis and both in a more immediate here-and-now cash flow sense and in a longer-term reserves and business development sense.
• Costs here, of necessity should also include consideration of wider risk management issues.
• To take that at least somewhat out of the abstract, consider the indirect financial benefits that keeping a cash flow only, defined “cost center” in-house might bring, and certainly when it could not safely by outsourced without creating unacceptable risks from loss of direct positive control and oversight of it (e.g. for getting essential work done on-time and correctly, where third party providers might not always be sufficiently reliable and particularly at peak demand times, or where possible loss of control over confidential information might create problems or risk of them in a tight regulatory environment.)

I have at various times in developing this blog, even explicitly equated costs and risks for how they can interact and functionally overlap. I cite that potential for such alignment if not outright congruence here too. And with that in mind I note that when I refer to costs here, I refer to a more widely and inclusively considered sense of that word as acknowledged in the above three bullet points. And in a similar manner, I presume in what follows here that profits similarly include a reduction in risk, with consideration of cash flow and liquidity measures as supplemented by what might be considered an at least equivalent to actuarial table-scaled costs reduction and containment too. Both costs and profits in these wider senses, represent the overall aggregate sums of direct costs (or profits) and related measures, plus risk measures with their probabilistically stated, actuarially defined possible (and with time likely) costs or savings added in too.

With that wider understanding of cost and of profits noted, I turn to explicitly consider the two categorical forms of business systems friction as defined in Part 16, and how the point of distinction that was noted there would more specifically apply in a research-as-product business.

• I wrote there of constitutive business systems friction, which might be thought of as a business intelligence and communications-limited counterpart to entropy. That can often be limited to a at least a degree by developing and instituting better overall information management and communications systems, as vetted by a business performance-aware risk management policy in place. But that means addressing business friction, at least in this form, as a matter of following more generically effective practices.
• For purposes of this discussion, however, I will focus on the second more business process-specific form of friction of the two: focally caused business systems friction. This is where friction becomes business, and business model specific. And for purposes of this series that means my focusing on this categorical type of friction as it applies in a research-as-product business model, as that model would lay out the basic operational systems that would be followed there, where this type of friction might specifically arise.

And I begin addressing that with the fundamentals. As noted and discussed in earlier installments to this series, the more specifically applied a research and development effort is, and the more tightly focused it is on enhancing or improving some specific product or product type, and particularly one with a pre-established performance record, the less risk that carrying out this work will in general, create. The more open ended this research is, as either more speculative applied research or as still more open-ended pure research, the greater the risk of loss of a strictly cost-center nature that this work would carry with it, and with a progressively larger potential aggregate overall loss risked at that.

When I focus here on focally caused business systems friction, and in this specific business-type context, I of necessity set aside more generically standard functional areas of that business, such as their accounts receivable office or their personnel office, each with their basic standard functions and work processes. And I focus instead on functional areas of such a business that explicitly and directly map out and functionally contain the business-specific aspects of the enterprise that set it apart, here as a research provider. And this leads me to two basic starter planning questions that I would begin any such business model-specific analysis with:

• What specifically are the work process systems that define this enterprise as a research-as-product enterprise?
• And what resources: specialized skills personnel definitely included, that would be needed to carry this out with whatever levels of what might at times be resource over-capacity allowed for in order to accommodate at least more readily, recurringly predictable fluctuations in resource requirement levels needed? (Think in terms of how friction can compel following a more prudent judgment that would explicitly add increased risk awareness and risk accommodation into each of a set of proposed outcomes scenarios as offered in the above cited Part 15 and Part 16 tripartite models.)

I am going to continue this line of discussion in a next series installment, where I will further develop this here-started set of basic due diligence questions, along with offering supportive commentary to explain how they would fit into an overall planning and development effort. In anticipation of that discussion to come, this is where more widely considered issues of costs and profits, and of cost and profit centers, and strategically rebalancing and improving risk load enters this business model-specific narrative. Then, and as a continuation of that line of discussion I will at least selectively discuss business transitions as they would arise for an enterprise of this type, and the challenge of knowing precisely when one business development stage is ending and a next one is beginning. And as noted at the end of Part 15 and repeated at the end of Part 16, 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 up to 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 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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