Production Across Diverse, Overlapping Temporal Frames
Marshallian firms operate in simultaneous, overlapping temporal frames that vary in length given the nature of the firm's production and exchange processes. Such considerations involve differences in production technologies, constraints on the integration of new capital investments, fluctuations on the growth of available factor supplies, and exogenous regulation of the entry or expansion of given firms. Each of these issues depends on the particular context of firms in relation to input and output markets, where such considerations emphatically respect geographical specificities and levels of competition between supply side agents and between consumers.
Fundamentally at stake in the definition of temporal frames is the problem of adjustment by firms to changes in technology, factor market supply, and output market demand. For Walrasian/Paretian firms, such adjustments are continuous and instantaneous. For Marshallian firms, we have to consider how firms make adjustments over prolonged periods and how prolonged adjustment periods affect production costs and, as such, market pricing. At the level of individual firms, we are concerned with the relative variability and relative fixity of production factors over each temporal frame. At the level of individual markets, we are concerned with the variability of market shares as firms adjust factor utilization and output levels, enter, and/or exit.
If we were to approach these problems by respecting the rigorously empirical character of Marshallian theory, then we would need to evaluate a range of divergent cases of real firms in which the nature of production and market engagement caused the temporal frames of each firm to vary widely. Such a broad investigation of the effects of time on production, investment, and exchange and the capacity of such processes to construct conceptions of the short run and long run would reveal the latent complexities involved in the entrepreneurial management of production scale and scope over time. This section will not offer such a detailed analysis of how real firms construct their own temporal firms. On the other hand, it will offer a speculative account on how particular types of firms in particular industries might develop strategies for managing short term variable factors and output quantities, undertaking intermediate term investments to increase operative scales and incorporate consideration of an increasing range of variable assets, and facilitating long term investments in large and/or complex infrastructures or human resources to alter the scale and/or scope of operations. As such, we will posit how a particular set of imagined firms in particular industries might approach entrepreneurial decisions over a set of overlapping time frames in order to understand how each approaches time in a different way.
With this in mind, let us consider the following set of hypothetical firms:
1. A small producer of aftermarket remanufactured automotive brake master cylinders.
2. An interstate supplier of commercial workers' compensation insurance.
3. An interurban operator of passenger buses.
4. An independent operator of a beef cattle feed lot.
5. A South Asian cafe in a small college town.
1. Remanufactured automotive brake master cylinders: The firm in question undertakes a single, four stage manufacturing process through which brake master cylinder housings are chemically cleaned, bored, and relined to produce a serviceable after-market, replacement master cylinder. The process requires chemical solvents, precisely sized stainless steel tubing, adhesive materials, and boring and drilling machinery. Labor resources utilized in the process typically do not require significant development through classroom training, but tend to demand substantial "learning by doing" - dexterity and precision at the various stages of the remanufacturing process, especially boring the housing of the master cylinder, demands that individuals involved demonstrate substantial proficiency or else recycled housings may be damaged beyond repair or reuse. Most critically, the firm requires a steady supply of used master cylinders of sufficient quality that they are capable of being rebuilt in order to realize a serviceable product at the end of the remanufacturing process. Spatially, the firm's manufacturing process occupies a relatively small space, just under 2,000 square feet. Storage facilities and office space additionally account for 1,500 square feet. The entrepreneur, a sole proprietor, owns the machinery and raw materials, but rents space and hires labor services, varying staffing in accordance with the availability of materials and orders from wholesale purchasers of remanufactured auto parts. He also operates with an open line of credit from a local financial lender to ensure that suppliers of raw materials and employees can be paid in a timely fashion, regardless of fluctuations in revenue from sales. The entrepreneur contracts on a discontinuous, recurring basis with both a set of suppliers of used master cylinders (wholesale suppliers of disassembled automobiles) and a set of wholesale purchasers of remanufactured equipment. Both factor and output markets are relatively competitive on both the producer/supplier and consumer sides. The technologies required to remanufacture master cylinders are relatively well known and a wide array of auto parts wholesalers readily stock remanufactured master cylinders, contributing both to demand for used master cylinders and stable output market prices. In these regards, the entrepreneur's operational and investment time frames are configured in relation to the availability of ready sources of used master cylinders, capacity of suppliers for other raw materials (solvents, adhesives, stainless steel tubing) to make materials available on demand, the availability of labor services including training for new employees, the adequacy of production and storage space, the adequacy of available tools and machinery including specialized lathes and drill bits, and the presence of ready wholesale purchasers for finished outputs, either speculatively or under contract. The discontinuous nature of the firm's contracting with both suppliers and purchasers means that the entrepreneur's operational decisions on production schedules operate on a short run horizon, with new supplies of used master cylinders arriving weekly, production schedules for use of labor and other raw materials determined on a weekly basis, and output sales driven by the weekly availability of new outputs and cushioned by available stocks of inventory. Intermediate term variables may be driven by seasonal patterns of raw material supply (contracting with new wholesale jobbers for used parts) or anticipated, defined contracts with wholesale purchasers. In either case, such dynamics may require increases in staffing, to include training of new personnel, procurement of larger supplies of other raw materials and replaceable parts for wear of tools and machinery, and procurement of alternative, possibly temporary, storage spaces for new inventories. Conversely, the anticipated loss of contracts or suppliers may drive reductions in staffing or other raw materials and replacement parts. Finally, long term horizons, driven by larger anticipated changes in output markets (e.g. major technological change in master cylinder technologies) and/or entrepreneurial efforts to expand or contract market share relative to competitors, or to expand scope of production to include other, related products, involve spatial expansion and/or relocation of production and storage facilities, purchase of new specialized machinery, and transformation of engagement with output markets, possibly including the development of specialized sales staff. Such changes may necessitate development of new financial lending resources to cover investment expenditures, with or without assurances that investment strategies will yield positive rates of return for the entrepreneur and for capital lenders. Alternatively, the entrepreneur may be able to achieve expansions of scale and/or scope through reinvestment of retained earnings over a longer period. In either case, the developmental horizon for such changes may extend for two or more years, a period over which no expectations enjoy any degree of certainty.
2. Workers' Compensation Insurance: This firm is an insurance corporation with multiple divisions catering to a range of household and commercial products. The division in question operates as a wholesale underwriter of workers' compensation insurance policies, although the corporation previously operated as a retail insurer with hundreds of local offices handling all product lines. Over time, it had grown in scale to a point at which its board of directors decided that shareholders would benefit from a policy of contracting policy issuance through local commercial insurance agents in exchange for a nominal commission per policy. Afterward, the corporation's multi-service local sales staff were eliminated. The workers' compensation division retains a staff of service representatives, field accident investigators, underwriters/actuaries, information technology specialists, and legal specialists/litigators. Employees in each of these sections have invested in substantial quantities of specialized human capital through advanced education. In certain cases, such human capital investments occurred prior to employment. Other investments take place on a recurring basis as on-the-job and specialized classroom developmental coursework at the firm's expense. Its major physical capital expenses derive from information and communications technologies, including annually updated in house and outsourced data management software programs. The division also expends resources developing publications for client firms reinforcing workplace accident prevention/mitigation and information updates on changes in statutory/administrative rules on workplace safety in key industries. Spatially, the workers' compensation division operates a free-standing call center in rented office space and proprietary office space at the corporation's headquarters facility, and numerous field staff, particularly accident investigators and litigators, telecommute, working from home offices and conducting field work such as on site investigations over accident claims. Financially, the critical constraint facing the division's growth remains its underwriting margin, measured as the ratio of expenditures (claim losses plus administrative expenditures) to premium-based revenues. As a consequence of jurisdictional differences in workers' compensation requirements, policies governing claim reimbursement, and competition with other insurance carriers, the workers' compensation division maintains relatively small positive or slightly negative underwriting margin on policies. As such, the corporation has pursued a bundling of policies to commercial clients, in order to boost premium revenues in relation to losses from claims, pronounced in workers' compensation. Evaluating the entrepreneurial temporal frames faced by the corporate board of directors, executives at the corporate level, and directors within the workers' compensation division, key strategic variables, even in human resource management, appear to assume a more prolonged character. In most circumstances, the recruitment and development of new staff personnel requires years of formal education and a prolonged hiring process, especially evident in the hiring of in house litigators/legal staff. This focus on the management of advanced human capital, in turn, shapes a broader long term focus on institutions, in particular statutory constructions of workers' compensation policy in individual governmental jurisdictions, through which the corporation seeks to reconfigure the conditions in which it offers, underwrites, and compensates claims to individual policy holders. In effect, the long run for the corporation constitutes a prolonged conversation with jurisdictional authorities concerning its capacity to generate profits by satisfying the legal requirement for employers to carry insurance against workplace injury or death. Conversely, management of physical capital and physical space appear secondary to the overall purposes of the corporation and its workers' compensation division. If information technology updates and new publications arise on an annual basis, and call centers relocate periodically in relation to real estate costs, then these investments tend to simply structure the conditions under which the corporation generates revenues in workers' compensation. Properly speaking, the corporation's short run and long run in workers' compensation are, respectively, shaped by its efforts to maintain and service its existing portfolio of policies and to expand the ranges of policy portfolios in divergent jurisdictional regions and industrial/sectoral categories. If the short run is, thus, configured in relation to annual renewal of existing insurance contract and the mitigation of risks through underwriting adjustments, then the long run concentrates on a broader strategic evaluation of existing and potential markets and on transforming the conditions for market penetration in order to create, by statute or juridical precedent, potentially profitable markets. In these terms, differences in temporal frames are immediately constructed into the firm's organizational structure, reflecting differentiations in demand for particular, heterogeneous production factors to perform distinct subsets of the larger process of producing and exchanging insurance services, as the conditions shaping markets for such services are in flux and susceptible to direct intervention by insurance carriers.
3. Interurban Buses: This privately held corporation operates interurban buses on twelve fixed routes, servicing forty separate terminals with five major intermodal hubs including its own central facility, which houses local and interurban buses, interurban and regional commuter commuter rail, express services to two local passenger air terminals, and substantial quantities of short and long term automobile parking. Rental incomes from various components of its central facility, including parking revenues, constitute a single and lucrative subset of the firm's larger operation, but we are principally interested in its interurban bus operations. The firm maintains forty-four buses, normally operating thirty-six in its daily schedules. Some of this rolling stock operates with a wide array of up-to-date technological amenities, including on board wi-fi connectivity and extra passenger leg-room. Seventeen of the buses are older models without amenities and incapable of accommodating significant modification. The firm tends to utilize the latter buses on predominantly rural routes to smaller terminals, not associated with a large flow of business passengers with whom the firm tends to be more attentive in response to other, competing modes of transit. As such, the firm focuses particular attention on the flow of business customers on three of its routes to local and more distant air passenger terminals, where passengers can substitute lower rates on long term parking at the firm's central hub for higher rates in closer proximity to the airports. The production of interurban transit services involves the actual transit process but additionally incorporates significant quantities of vehicle maintenance and logistical control and communications to maintain continuous control over vehicles in operation. The firm has a single logistical/control/dispatch facility but employs field staff at all of its terminals both to facilitate forward control and handle ticket sales. In recent years, moreover, the firm has been compelled to take a more sober approach to vehicle and terminal security. All of its field personnel and drivers are advised and trained on security/anti-terrorism procedures to maintain passenger and vehicle safety. The firm provides security staffing as well at fifteen of its terminals, in coordination with governmental anti-terrorism authorities. With these processes in mind, the firm employs a significant range of specialized personnel. Drivers are exclusively hired with prior licensing and training in the operation of commercial passenger vehicles. In these terms, incoming drivers are responsible for their own investments in specialized human capital. Similarly, maintenance staff typically come to the firm with substantial training in automotive repair and experience in the servicing of commercial passenger buses. Hiring practices emphasize a general preference to minimize training of drivers and/or automotive technicians to brief orientations on the operation and/or maintenance of vehicles, otherwise reinforcing background proficiencies. The same may be said in regard to information technology personnel, servicing logistical/control and human resource management hardware and software. On the other hand, driver and field staff orientations do include substantial reinforcement of customer service guidelines in order to project an amicable corporate persona in the treatment of passengers. Security staff undergo rigorous training in conjunction with government security/anti-terrorism authorities. Vehicle maintenance is continuous for the firm. At any given moment, the firm has at least five of its vehicles undergoing quarterly full service maintenance and other vehicles undergoing repairs to correct technical problems/deficiencies, often arising with high technology features. Spatially, the firm's proprietary central terminal facility occupies 90,000 square feet in the central business district of its home city, including office space and rented concession outlets, with an additional 120,000 square foot of short and long term parking. It also maintains a separate 58,000 square foot proprietary maintenance and vehicle storage facility at a peripheral industrial park in the same city. Office and ticket counter spaces in other terminal facilities on its routes are rented from local proprietors or otherwise operated under agreement with local proprietors and/or governments. With regard to physical capital, the firm maintains information technology hardware and software to handle logistics/control, human resource management, cost and financial accounting, and ticketing/sales. Most software programs are updated on an annual or biannual basis. The multi-use functionality and compatibility of computer hardware has expanded substantially over time, allowing the firm to prolong the useful life of assigned desktop and laptop computers. Computer diagnostic terminals for automotive repair need to be updated on a more regular basis. Further, the firm, in its capacity as landlord, has to make periodic capital upgrades to the rental spaces in its central facility. However, its rolling stock remains it predominant category of physical capital expenditure, and these expenditures are a day-to-day investment, consuming a constant stream of circulating capital, encompassing expenditures on fuel, recurring vehicle maintenance, and labor (drivers and maintenance staff). With these considerations in mind, the firm's corporate executives and supervisory staff operate on differential layers of temporally-focused decision frames. In the super-short/immediate term, daily operating schedules have to incorporate spot readjustments on vehicles and drivers and to adjust routes in response to weather conditions or other emergency circumstances arising on an hourly basis. The short term frames itself around weekly planning of route schedules for drivers and assignment of vehicles to routes or for periodic maintenance. Month to month, the firm adjusts its schedules in accordance with changes in seasonal demand on particular routes. Such adjustments also incorporate detailed assessments on fuel expenditures in relation to ticket sales on particular route schedules. Fluctuations in fuel costs, thus, constitute a significant constraint on the number of scheduled buses for routes on both weekly and monthly time frames. Over daily, weekly, and even monthly temporal periods, the firm is axiomatically focused on the changing details of its transit operations because this is where the relevant variables can be manipulated. Likewise, pricing for transit reflects short term frames, with discounts applied in inverse relation to the duration between time of purchase and time of departure - ticket purchases at the time of departure are marked at full price. On a year to year basis, revenues generated from rental contracting can be varied in relation to changing market conditions. Additionally, longer term capital expenditures, including technological upgrades for its bus fleet, the purchase of new buses, rental of space in new terminal facilities, construction or purchase of increased maintenance and storage space, and development of new routes to new transit markets can be contemplated.
4. Beef Cattle Feedlot: This firm is a family owned independent farm operator of a beef cattle feedlot, located on forty-eight acres in a highly rural state. It regularly operates with six rotations of one hundred twenty to one hundred forty head, each in 72,000 square foot pens. The farm additionally maintains 30 acres planted in a combination of feed corn and alfalfa, contributing, in part, to its feed operations. Notwithstanding, the bulk of feed grains, proteins, and roughage demanded by the feeding process is contributed by purchases on contract with wholesale marketers of cattle feed. As such, fluctuations in the market prices of feed grains and other dietary components in the feeding process constitute substantial constraints on the farm's operations, impacting the total finishing period for feeding cattle prior to marketing (and, hence, the total weight per head/carcass at the time of sale) and regulating the total occupancy of each feeding pen. To the extent that pricing along the larger stream of the beef cattle supply chain constitute the primary regulatory variables for the firm over its annual schedule of operations, including market prices for live (pre-finished) cattle stock and feed grains, market prices for finished feeding cattle, and variations between spot market pricing and hedged/future contract prices, the farm is still able to regulate other variables, including staffing. In addition to family members, the farm employs ten to fifteen cattle hands to assist in the daily operations of the farm, including daily feeding operations and seasonal cultivation of feed crops. Further, the farm expends significant resources to contract outside veterinary services, a necessity if the farm is to maintain the overall health of each feeding pen and mitigate mortality rates. While some feedlots operating on this smaller scale actively manage nutritional requirements for cattle through recourse to a staff nutritional professional, this farm is incapable of affording the expense. In this manner, sub-optimal nutritional mixes of grain and dietary proteins promote ratios of daily feed to weight gain per head for the farm's cattle that tend to be substantially higher than industry averages, incorporating the much lower averages of large, corporate-owned/managed feedlots. Further, use of beta-agonist medications, promoting increased and more predictable muscle growth in the later stages of cattle finishing, follows a more irregular pattern than in feedlots incorporating day-to-day nutritional management, resulting in longer total feed times and less uniform weights per head. While the farm's land is wholly owned, like numerous other feedlots of this scale, it maintains a non-negligible debt burden to finance its yearly operations. Given the smaller scale of the feedlot in relation to corporate operators, it is difficult for the farm to actively engage in financial risk management through futures/forward contracts, rendering it continuously subject to the risk of fluctuations in negotiable market prices per finished head at the time of sale to packers. Finally, the farm is reliant on outside contracting for transportation of finished cattle to packinghouses at the point of sale. In this regard, fuel costs, incorporating consideration of distances from the feedlot to purchasers, constitute a relevant variable for the farm. All of the above considerations shape the particular ways in which the farm is either subject to or capable of manipulating time. At the outset, the farm is most capable of regulating its particular utilization of local labor services, in which it tends to rely relatively little on the accumulation of substantial investments in specialized human capital. Most farm hands have a long history of employment with the farm or with other farms in the area, but do not command an excessive return for education or the accumulation of privilege experience, and the farm is able to regulate its employment schedule in relation to seasonal demands, pointedly related to its cultivation schedule. Its management of physical capital, both as a matter of day-to-day maintenance of farm equipment and investment in new equipment/infrastructure, follows a predictable pattern. The farm has a collection of proprietary farm equipment that it attempts to maintain for multiple successive years of production, both in feedlot operations and in crop cultivation, but older equipment does have a tendency to require more intensive maintenance. In good seasons, when market prices for finished cattle are relatively high, the farm is able to save and eventually reinvest savings as capital into new equipment purchases, but this is a multi-year cycle. In dire circumstances, particularly at harvest times, the farm may be compelled to rent certain capital implements to make up for deficiencies when it would be impractical at best to purchase a new tractor or other heavy equipment outright. The critical seasonal operational variable, however, obviously concerns the scale of live cattle purchases from breeders, considered in relation to sales prices from breeders, contemporaneous and expected future prices for cattle feed, expected internal outputs from cultivation of feed crops, expected transportation/fuel costs, and expected future sales prices to packers at the conclusion of a finishing period of indeterminate length. Insofar as all of these considerations figure into the compositions of each of the farm's feeding pens and, thus, the scale of its total operations at any given moment in time, it operates as the primary constraint on the firm's revenues, over a cycle that, for this farm, typically takes thirteen months from purchase to sale.
5. South Asian Cuisine: This cafe is a family operation started by an immigrant entrepreneur who initially began by operating a food cart in the downtown of this small college community. He subsequently invested in a second food cart, renting space on the floor of the college's campus center and preparing a range of food items for sale at both sites in the kitchen of his apartment, a practice that was discontinued when he received greater scrutiny from the local municipal health department. Faced with the inability to continue operations entirely out of his home, but otherwise awash with free cash from retained earnings from operation of both food carts, he sold one of the food carts and rented a commercial kitchen off the main thoroughfare downtown, with a small store front, allowing him to introduce counter service with limited seating, retaining, as well, the rented food cart space at the college. After several years of operation and maintenance of a sustained loyal clientele, the entrepreneur took the risk of relocating to a full-size restaurant space, with 1,100 square feet of seating space and a 950 square foot commercial kitchen, fully equipped in compliance with local health standards to provide food items for the restaurant and for the campus food cart. The majority of the kitchen staff are members of the entrepreneur's extended family, with the exception of one assistant chef and two cleaners. By contrast, the restaurant maintains a staff of eight to twelve table servers/hostesses, only one of whom is a relative. During the course of the school year, part time serving help is readily available in the area from students seeking variable weekly shifts. A son and nephew of the entrepreneur manage and staff the campus food cart. In provisioning the restaurant and previous manifestations of the business, the entrepreneur has relied largely on a single wholesale food services provider for non-perishable legumes, canned vegetables, miscellaneous ingredients for proprietary sauce recipes, and relatively inexpensive cuts of fresh poultry. Increasingly, since the opening of the larger restaurant, he has sought to increase local sourcing of fresh vegetables in season in an effort to appeal to demands of clientele for local ingredients. This move to local food sourcing has raised the cost of several menu items, but the loyalty of repeat customers has maintained a robust demand for the restaurant's production, notwithstanding a wide array of alternative culinary options in the downtown area. Demand for the restaurant's services varies predictably in relation to the academic schedule of the college. From mid-May to early September, as students and some faculty and staff leave the area, business declines slightly and the campus food cart is retired entirely. In turn, the restaurant scales down the number of table staff to a minimum. Considering seasonal fluctuations of demand and innate geographical limitations on the scale of the market (i.e. steep decline in customer base at the community's periphery), the entrepreneur confronts a relatively static long term horizon for growth of operations. To the extent that the entrepreneur maintains an amicable relationship to the landlord of the rented space of the restaurant and few alternative rental opportunities exist in the downtown area to improve on monthly rental expenses, there is little prospect that the business will relocate from its current space. The entrepreneur focuses, for the most part, on diligent maintenance of kitchen equipment (e.g. stoves, small cooking implements, refrigerators, etc.) and accumulation of a share of retained earnings as a replacement fund to deal with depreciation. Purchase, use, and depreciation of higher cost kitchen equipment represents a multi-year cycle. Replacement of kitchen staff also occupies the entrepreneur's mind as family members leave the area or embark on other projects. Tasks in the kitchen manifest a prolonged practice of on the job training in the preparation of proprietary recipes meeting optimal consistency and product quality. As such, hiring and training of staff for the kitchen represents a palpable investment of time. Regulating the number of available table servers, by contrast, to adjust to seasonal fluctuations of demand is relatively easier for the restaurant. Insofar as the restaurant does not serve alcohol, it confronts relatively few restrictions on table staffing beyond compliance with child labor laws. If staffing issues remain a seasonal, short term variable of concern for the restaurant, then the super-short/immediate term represents itself in weekly or even daily staffing and persistent control of perishable product inventories to ensure both the optimal freshness of prepared dishes and full utilization of purchased fresh produce and poultry items, realizing that any effort to utilize questionable materials in the kitchen is apt to not only bring scrutiny from local health department officials but damage the restaurant's strong reputation within the community. With this in mind, the day-to-day practice of provisioning, especially when local produce items are in season and available, constitutes the most important and continuous variable in the operation of the business.
The rationale behind this extended elaboration of hypothetical firms has been to imagine circumstances in the operations of conceivable enterprises in which divergent engagements with markets heterogeneously structure entrepreneurial decision sets in relation to time. In approaching these decision sets, we might emphasize the subjective and strategic nature of entrepreneurial activity in relation to market competition and cooperation/defection by separate agents within the firm. Such an approach will occupy us in developing a strategic/game theoretic approach to the firm. Conversely, the accounts above sought to stress, on the one hand, the innate complexity of decision sets even to the extent that, on the other hand, entrepreneurial activity can be reduced to manipulation of a changing/overlapping set of variables against a changing/overlapping set of objective constraints. In some way, shape, or form, all of the above firms negotiate the complexities of an environment structured by the exogenous determination of critical variables. While this might be most apparent for the operator of a small cattle feedlot, sandwiched between other producers in a longer supply chain for beef products in which the entrepreneur is utterly incapable of affecting output prices, it is no less true for a corporate workers' compensation insurance carrier, subject to market structures determined, in large part, by statutory and judicially-mandated requirements for commercial insurance coverage.
Moreover, it is critical to the larger focus of the theory that, over longer temporal periods, each entrepreneur can affect a wider range of variables, but the extent to which each can shape the firm's engagement with markets always depends on the context. Our feedlot operator is probably least able to shape his long term engagement with the farm's market, but the potential still possibly exists for collaboration with other small operators in his region in order to achieve more predictable output prices by means of financial futures/forward contracting. Our bus operator can, conceivably, expand the range of terminals serviced by the firm, but this will rely on investment in new rolling stock and in new terminal facilities, with all of the attendant increases in labor, spatial/rental, and capital expenditures to increase the scope of current operations. With these considerations in mind, I will move to develop a generalized theoretic conception of Marshallian firms in different temporal frames, hoping to maintain a connection to the hypothetical elaborations in this section.
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