“Disaster myopia”: Failing to learn the lessons of increased uncertainty
Monday, 6 December, 2010 2 Comments
Financial or physical loss doesn’t only stem from “risk”! Risk we know a lot about. Dare I say that we understand, can quantify and influence (if not manage) risk? I would add one caveat though. Much of the accumulated data upon which probability and, therefore, rating is calculated, relates to a period which bears little resemblance to the world and civilisation as it is today…or will be in the future.
So what about the murky world of uncertainty that lies beyond risk? What do we know and what can we do to “deal with” that? Because that is what we are, increasingly, dealing with…
Today, there are fewer certainties.
Unfortunately, our habits of thought still make us look for linear trends and other simple patterns, and make us expect the future to be a recognizable version of the past. In many cases, we constrain our lives in an attempt to achieve such security, but in complex networks of competing businesses, in financial markets, in the world of emerging technology, and in politics, these expectations are out of place.
Organizations need to learn to distinguish between the kinds of problems that can be handled with traditional perspectives, where precise prediction and solution is possible, and the kinds of problems associated with unavoidable complexity.
Entrainment of thinking is an ever-present danger.
“We” have made some huge mistakes and it would be naive to assume that those who masterminded the mistakes will not do so again! They may not have learned the lessons because…
they have not been punished nor have they felt the brunt of the pain, thanks to the debts (that span generations) being socialised.
Business Leaders need to become “Risk Leaders”…and quickly! Robustness or resilience is your goal.
If you aren’t already familiar with terms such as: complexity; systemic risk; “epistemic, partially or fully reducible uncertainty”; Fourth Quadrant; Knightian Uncertainty*, then you have some work to do to prepare a business for survival in the months and years to come.
In modernity it is pointless denying that we aren’t all part of an infinitely complex network of systems and ecosystems. We need to get “fit for randomness”:
To take the “fat tails” of power law systems seriously. Expect change to arrive not gradually, in a way that will allow the organization to adjust in real time, but in sudden discontinuities of great consequence that reshape the business environment, bringing both dangers and opportunities.
To recognise that globalization and decentralization bring risks as well as rewards, and that more is sometimes different — that increased interdependence can create the conditions for “emergent” threats that are traceable to no specific element within the system.
To take note of the human element in efforts to become adaptable, in part by organizing practices to decrease “entrainment of thinking.”
*Here is some interesting reading I recently stumbled upon that will help with understanding risk, uncertainty and the economy: Risk versus Uncertainty: Frank Knight’s “Brute” Facts of Economic Life