#50: Leaving money on the table

Building assets to prepare for uncertain times.

I’m Vaughn Tan; this is another of my weekly attempts to make sense of the state of not-knowing. The first issue explains what the newsletter is about; you can see all the issues here.

My first book, The Uncertainty Mindset, is a behind-the-scenes look at cutting-edge high-end cuisine … and what it can teach us about designing organizations to be more adaptable and innovative. You can get it here. If you like it, help me out by leaving a review somewhere. Book events are coming soon—tell me what you’d like to see and sign up for notifications here.

Hello again, friends,

tl;dr: Operating responsibly seems inefficient but actually creates the system-level, polyvalent resource businesses need to adapt and survive in uncertain times. 

One motif of this newsletter is that being prepared to deal with uncertainty requires tolerating what appears to be inefficiency. Another way to say it is: being ready for uncertainty is naturally opposed to always being optimized. Yet another way to say it is: super-optimized systems are fragile.

Operating responsibly—which inevitably means constraining action—always seems like something which reduces a business’s freedom to do whatever it takes to Make More Profit. At base, responsible business is equitable; it’s fair to the counterparty. It means, among other things, not overcharging the customer, giving the employee a reasonable or even generous salary, and not underpaying the supplier.

As a business, being fair to consumers, employees, and suppliers even when not forced to by consumer or employment law, or by supplier market power, seems like leaving money on the table. So doing business responsibly seems only tolerable in stable, superabundant times when there is so much comfort and money to go around that it’s ok to leave some it for others.

In fact, the opposite is true.

“Unnecessarily” responsible behavior creates intertemporal reciprocity between the business and those it is responsible to. This is a resource that can be drawn on in time of need—as hundreds of childrens’ books and parables have illustrated.

Employees, customers, and suppliers who have been treated fairly are more likely to be flexible when the business needs them to be. They are more likely to work harder, and to take on unpredictable and changing roles. They are more likely to buy out of loyalty even when they have no need to, or when the product available is new and unfamiliar. They are more likely to extend credit, supply at short notice, reduce minimum order quantities, or rush a delivery. This is system-level flexibility; it comes from both inside the business (the employees) and the environment outside the business (the customers and suppliers).

Responsibly treated employees, customers, and suppliers usually repay the favor by doing what a business needs at the moment, even if what that is could not have been defined in advance.

System-level flexibility is not a conventionally understood resource or capability, like having a lot of spare cash in the bank or a workforce trained to manufacture a particular widget. It’s a different type of resource, one that allows the business the freedom to change what it does when it needs to.

Operating responsibly appears inefficient but in fact produces a multipurpose resource: system-level flexibility which has no specific predefined form or function but instead transforms to be whatever is useful when the need arises. This is a polyvalent asset that makes a business more resilient and adaptable—operating responsibly is more, not less, important in uncertain times.

There's nothing to it.

Bonuses:

1. A really nice article by Laetitia Vitaud about innovation lessons from the frontiers of food (in French).

2. Tim Hwang’s Trade Journal Cooperative sends you an extremely specific industry journal each month.

3. The Yuru-Chara Grand Prix.

Photos from the field: Until Issue #52, each week I’ll post some photos of everyday work in culinary R&D teams, selected from thousands I took during fieldwork.

Pre-opening Haribo-fueled late night work session (at ThinkFoodTank, 2010).

Really, really old clams (at Amaja, 2011).

Precision caramelization (at the Cooking Lab, 2012).

By the way: This newsletter is hard to categorize and probably not for everyone—but if you know unconventional thinkers who might enjoy it, please share it with them.

Find me on the web at www.vaughntan.org, on Twitter @vaughn_tan, on Instagram @vaughn.tan, or by email at <uncertaintymindset@vaughntan.org>. You can also find out more about my book at www.uncertaintymindset.org.