[The following is the fourth in a series of articles published in the business section of the Vancouver Sun. For context, see the intro to this series here.]
How would your business respond if the internet collapsed, or an earthquake hit or if the bottom fell out of the stock market?
Every business bares a certain amount of risk. Whether in people, process, or technology, enterprise risk is a fact of doing business. Risk assessments can identify known threats to operations and mitigate them. But what about risks that don’t show up on risk assessments?
Nassem Taleb’s book The Black Swan: The Impact of the Highly Improbable argues that business affords too much attention to predictable threats, and far too little on those that have not happened before. In other words, we look into our rear view mirror to identify future danger. It is not, Taleb argues, the probable risks that pose the greatest threats, but the improbable, events so rare that their occurrence defies whatever contingencies we have in place to respond.
It is these events that produce the greatest impact on business, rather than the small gains and losses of a typical day. The largest 10 daily moves in the S & P 500 over the past fifty years, Taleb emphasises for example, account for half of the gains over that period. What you’re not expecting can either ruin you or open the door for remarkable success.
Most contemporary organizations are still built on a mechanical concept born of the industrial revolution. Rigid hierarchy and linear outputs produce command & control decision-making that was appropriate in a simpler era. But times are changing. The Information Age has both increased and complicated our risk portfolio, globalizing operations beyond the comfortable reach of the command & control operating system.
Resilience in the 21st century demands we find creative ways to increase response time by building adaptability and dexterity into the fabric of operations. This means, among other things, taking steps to reduce bureaucracy while transferring responsibility and decision-making authority across the organization.
Put another way, the operating system needs to change, with organizations shifting from a command & control mentality to one that can sense & respond. And this means hiring and developing people that can handle this responsibility. Paradoxically, as technology and processes improve, it is the capacity of people that will determine the degree of an organization’s resilience.
Skills in a sense & respond organization include being able to synthesize various streams of information coherently while learning to tolerate ambiguity. These are capacities that can be developed with the right coaching and developmental support.
In truth, we don’t know what we don’t know and we never will until it happens. But you can be confident that if your organization is structured to produce slow decisions and your people spend their day following rote procedures, you lack the basic resilience necessary to compete in the new economy and are vulnerable to the increasing risks that are found there.