Even when the DNA is similar “we can’t fix today’s problems with yesterday’s tools”:: Part 3


WARNING THE FOLLOWING ARE BAD FOR THE HEALTH OF A BUSINESS SYSTEM:

EXCESSIVE COMPLEXITY can come in a wide variety of forms: flawed economic theory; excessive debt (measured in relation to the requisite complexity of the system); poor or misguided Governance [instead of homoeostasis for business]; general/risk management or accounting practices that “constrain” the system in pursuit of skewed rewards or excessive returns*; misaligned operational structure & IT;  or processes &/or products; product, culture and strategy ambiguity (that hamper information-flow);  lack of “requisite variety”; assumptions or decisions based upon correlations in incomplete or misleading data…all very dangerous for individual financial systems and those connected to it, irrespective of scale or domain.

*the assumption that, because we know (knew) how to manage complicated systems, we know how to do likewise with complex systems is, evidently, wrong and dangerous.

We continue to be limited by our own knowledge, thus, invite disaster. We prefer faux certainty (a projection of the future based upon our past) to the reality of uncertainty and, as a result, when disaster strikes, we are prone to “label” what was unforeseen as unforeseeable…that suggests that we have looked but did not see! When, too often, the truth is that we didn’t look but assumed. Or “overlooked” by failing to utilise the tools available to us.

Even when great care is taken, by ‘enlightened leaders’, to structure the most effective enterprise, the task of monitoring let alone maintaining a resilient operation is far from straightforward…it is, undeniably, highly complex! Business and risk management efforts intended to deliver financial performance within ‘safe’ parameters are, like the multi-layered, mixed, simultaneous or conflicting ‘risk decisions’, subject to, ‘bounded rationality’, cognitive biases, self-interest or silo-mentalities… All this ‘noise’ can drown out the signals [internal and from the business’ ecosystem] that are required for a healthy system.

When we understand that EVERY complex system is dynamic [no single equilibrium] and that it adapts to interact with its environment we begin to appreciate that, we may influence but CANNOT ‘manage’ a system that is vastly more complex and fast-acting than the capabilities of conventional tools and techniques. This is why we make do with trying to predict the unpredictable, buying protection [insurance risk transfer] and reacting after-the-event to try to prevent the recurrence of a negative outcome or try to repeat the process that led to a positive outcome.

Ontonix offer the means to monitor, in ‘real-time if required, the resilience of a dynamic system: business; financial; biological; technological…

Journalist William Langewiesche, who specializes in deconstructing accidents, says that there are three kinds of accidents.

• “Procedural” accidents, in which someone makes a mistake — as when pilot error causes plane crash.

• “Engineered” accidents, in which materials or structures fail in ways that should have been foreseen by designers and engineers.

• “Systems accidents,” such as the Gulf oil spill, which occur because “the control and operation of some of the riskiest technologies require organizations so complex that serious failures are virtually guaranteed to occur.”

Among those “riskiest technologies” are the air transportation system, nuclear power plants, aircraft carriers and, as we now know, deep-water oil drilling. We accept the risks they entail because we like the rewards they provide.

Business Symptoms:

BusinessRisks_thumb2

In Parts 1 & 2 I referred to the dangers associated with the use of intuition or deployment of the wrong tools in, well intentioned, efforts to rectify problems or to avoid damage or loss…but, that amounts to treating the symptoms of something(s) lying deeper within the system.

This list (left) of symptoms SHOULD assure us that there is more merit in accepting responsibility and investing to identify and treat sources of business risk [prevention], that are within the scope of our influence. And to achieve better, more sustainable, business outcomes [performance] by using current information to:

  • measure, map, monitor and manage system components and connections
  • make verifiable, quantitative, “risk decisions”
  • gaining early warning – “anticipatory awareness” of risk/opportunity [Dave Snowden, Cynefin]
  • track causality
  • reduce complexity
  • reduce risk
  • reduce uncertainty – extend the “risk horizon”
  • increase resilience
  • contribute to (re)building systemic resilience

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