Decisions, risks and entrepreneurs

The next post will cover this subject in more detail, but meanwhile here is a hint of what is to come. The idea that entrepreneurs manage risk and uncertainty; and make decisions differently has been researched by Saras Sarasvathy. Successful entrepreneurs were studied to detect these patterns – and the results are insightful, but also feel intuitively correct. It is called “effectuation”. And all you corporate people – note it is also valid and important for large organisations too!

So .. how do entrepreneurs handle risk and uncertainty? What do the successful ones do differently? How do you plan when you are dealing with new and unknown markets?

Attached is a visually attractive depiction of the study and the results.

Effectuation – entrepreneurial decision making

 

 

A Brave New World

This week the World Economic Forum kicked off in Davos – and as always, we will be following it with interest and alerting our clients and readers to interesting forums and discussions.

Not coincidentally, this is also the week that we are launching our new “Brave New World” initiative. The tough economic times continue to a greater or lesser extent depending on your perspective (country, industry, region, …) and we believe the green shoots are showing or about to show. The biggest challenge many organisations face is that the business environment has changed fundamentally but many are still looking in the rear-view mirror to plan the road ahead. Coupled with that is that many are also in survival mode – with a strong internal focus on cost containment.

Resources tend to be stretched especially at executive level and although we know we should be considering the broader trends and fundamental changes that have been happened, we seldom give ourselves the opportunity to read and absorb some of the material out there (such as is coming out of the World economic Forum) – to say nothing of sitting down as an executive team to discuss the implications and opportunities for the organisation.

The BraveNewWorld challenge is to change this mindset in your organisations (if it exists) and proactively look at the new “world” you will be facing, with a perspective of seeking opportunities and growth. Taking the time out to assess the future NOT through the perspective of the rear-view mirror, but from the perspective of what the future might look like. Contact me at BraveNewWorld@GenesisMC.co.uk to discuss how we might be able to offer assistance in this process.

Back to Davos, the theme of this years conference can best be described using Professor Klaus Schwab’s words:
“Today, we live in the most complex, interdependent and interconnected era in human history. We are increasingly confronted by major adaptive challenges as well as profound transformational opportunities. This new leadership context requires successful organizations to master strategic agility and to build risk resilience.”

Later posts will discuss specific debates at Davos, but for this first post I should like to bring to your attention the WEF TV channel at http://www.weforum.org/events/world-economic-forum-annual-meeting-2013 . As I write this, I am watching a discussion called “De-risking Africa” with discussions from Clayton Christensen (disruptive technologies) and Global Risks due in the next few hours. Incredible stuff and whether or not you agree with the opinions expressed, it should certainly stimulate your thinking.

And finally, congratulations Charlize on your Crystal Award. Beauty, brains and empathy  …..  an exceptional and rare combination.

 

 

 

 

The 6 key mistakes executives make in risk management

By now, every executive in business recognises the term “Black Swans” as representing low probability, high impact events. However, many do not know how to handle them in ther management of risk. There is an HBR article by Taleb, Goldstein and Spitznagel discusses the 6 most common mistakes made by executives in this regard. Summarising the article ….

  1. We think we can manage risk by predicting extreme events.
    The advice is NOT to try and predict these Black Swan events (which by definition is impossible), but rather try and identify your vulnerabilities and focus on the consequences of these events and how to withstand them. What my colleagues in Consileo call “building resilience”.
  2. We think by studying the past we will be better able to manage risk.
    You cannot use hindsight as foresight as paste events do not bear much resemblance to future shocks. I do not think the article is saying that nothing can be learned from  the past; but rather that Black Swan events cannot be predicted using past trends and happenings.
  3. We don’t listen to advice about what we shouldn’t do.
    We tend to like positive advice far more than negative (loss prevention) advice and so give greater weight to the positive advice.  A dollar not lost is economically equivalent to a dollar earned, but risk managers don’t treat them equally.
  4. We assume that business risk can be measured by standard deviation.
    Although statistical techniques are useful in concepts like investment risk, they are dangerous in real life where events do not follow a normal distribution. The article also claims that even many quants analysts do not really understand the concept of standard deviation and so what is the chance that non-experts are  going to get it right.
  5. We don’t appreciate that what’s mathematically equivalent isn’t psychologically so.
    Here the authors demonstrate that how the same risk is presented can significantly impact on how we react to it. They are basically discussing the concept of framing and our heuristic-driven response to different descriptions of the same thing.
  6. We are taught that efficiency and maximising shareholder value don’t tolerate redundancy.
    Basically here the paper highlights how too much optimisation can increase an organisation’s vulnerability. To demonstrate this, a “lean” human being would only have one lung and one kidney!

The article ends discussing the risk of incentivisation if structured incorrectly. I really like their conclusion here which is so appropriate in light of the financial-system driven crash we are trying to recover from; and even the news of the last week where JP Morgan have announced a $2bn trading loss (which I suspect may only be part of the true picture, but we will see …):
“Moreover, we shouldn’t offer bonuses to those who manage risky establishments such as nuclear plants and banks. The chances are that they will cut corners in order to maximise profits.”

The full article may be found at the Harvard Business Review web-site at
The 6 mistakes article
although you may have to register to download it

A while ago we wrote an article called: Taking strategic decisions in the face of “unknown unknowns” which complements this risk article nicely and gives some advice about what you could actually do to address some of the challenges put forward by Taleb.

Decisions in the face of uncertainty

If you would like to discuss how we may assist you and your organisation in addressing critical risks and building resilience, please drop me a line at sgifford@genesis-esp.com

 

Decisions and leadership meet technology and crowds

Leadership and decision-making meet technology, collaboration and crowds.

When I publish an article (or in this case a broadcast), I normally try and summarise it soIBM Think that my too-busy readers are able to get the gist of what is being said without reading the original article; or at least are able to make a judgement on whether or not they want to read the original article.

In this case, I am not going to do that as this video has too much excellent content to allow me to summarise it. I will only say two things:

  • It includes excellent input on decision making, the use of technology, the new leadership paradigm, group intelligence and the fact that you must have women in a team to increase the level of this intelligence (that should provoke a few of you to watch it at least).
  • I personally believe that the discussion here holds the kernels of the future of  leadership and management; and so strongly recommend anyone who has an interest in better understanding this topic and wanting to get more out of their organisation – be it public sector or private sector – takes the necessary 40 minutes to watch this IBM Think Forum video.

Decisions and leadership meet technology and crowds

Thanks to my colleagues at THOUGHTstream who brought it to our attention. Jamie at Ts bravely did attempt to make a summary – please visit “Jeopardy, women and chocolate” to view their take on the video. Thanks also to IBM for putting this, and other great work , into the public realm.

 

If you would like to know more about embedding science within your leadership and decision making processes, contact me at sgifford@genesis-esp.com for a no-obligation discussion.

 

World Economic Forum 2012 .. some thoughts

Davos 2012.
Some thoughts on the WEF conference

Having trawled through many of the summaries, videos, tweets and other reports on the conference, I am trying to pull together my overall feelings and perceptions about the 2012 Davos conference.

There were hundreds (perhaps thousands) of issues discussed, but the big themes arising were the Eurozone crisis, the jobless situation particularly among the youth, the impact of social media, the questioning of the capitalist system and the gap between the have’s and have-nots (included/excluded; in-system/marginalised). Naturally, there was also discussion around the ubiquitous topics of energy, social entrepreneurship, visions and values.

I had (still have) a level of discomfort about the composition of the gathering. The governments, regulators and financiers, who must hold some of the blame for what is a less-than-comfortable world economic environment, are those selected to discuss the situation and what should be done about it – without much input from the other 99,999% of the world who are trying to muddle through the mess. And doing it at a venue that costs most of the business people about $40,000 to attend the 5 day event!

A classic example, Vikram Pandit (CEO of Citibank), co-chair of the Forum said “Jobs should be our number one priority”. A few stats about Citibank: they took a $45bn bailout, share price has fallen 91% since Pandit took over in 2007; they announced a 4,500 job-cut in December and Vikram received a $3,7m bonus for his 2011 performance. I am sure some must doubt his capability to envision and champion job creation schemes.

Having said that, I do fully support the Forum and believe Klaus Schwab’s initiative is very important. Perhaps there were fewer solutions forthcoming in this round, but at least the debates were had and new ideas put on the table. Furthermore, despite the tough times and apparent insurmountable problems, the almost TED-like feeling of optimism and good-will that most delegates take away has to be a good thing given the power that many of them wield.

One of the sources of optimism and a highlight of the conference, was the input from the 70 YGL’s (young global leaders) who were invited to participate. Many of them with fresh perspectives on issues and with significant successes already achieved, they offered a new energy and challenge to the status quo. I can recommend watching the closing video  (Note: WEF web-site sometimes has some technology issues in accessing the videos – keep trying!)where 4 of those YGL’s were on the podium – including a young South African woman: Rapelang Rabana. She was an inspiration, especially in comparison to the tired panel called “Africa: from transition to transformation” chaired by Gordon Brown and with 5 African heads of state including SA’s Zuma – all except perhaps Condè (President of Guinea), were embarrassing to watch as they blamed everyone and anyone (except themselves) for non-delivery on the continent and seemed unable to articulate an inspiring and credible vision for Africa. (The fact that some of these leaders continue to address Gordon as Mr Prime Minister left me wondering if they knew he is one of the millions who has recently lost his job!).

I would encourage Klaus to continue including these Young Global Leader’s and also try and open it up to other inspiring segments of the world population who are making positive changes in the world – after all you don’t have to be in the top 0,001% of the worlds richest or less than 30 years old to “make a dent in the world”.

Another theme that is not new, but is increasing in importance and close to our hearts here at Genesis, is the issue of collaboration in decision making. As leaders become more alert to the ramifications of their strategic decisions and the impact that the outcomes have on many lives across continents and even generations, there is a growing acknowledgement that more people must be included in the decision making process. We are not saying that all decisions should be consensus decisions; in fact, we believe the overlap between consensus decisions and intelligent decisions is probably not that large – but where possible, “outcome-stakeholders” need to give their input. Not only by reminding decision makers about the potential impact of the decision, but frankly many people who do not sit at the boardroom table are able to offer crucial, creative and critical insights into the deliberations that could have a significant impact on increasing the possibility of a good outcome. Given we are in a world where many problems require new and innovative solutions and not simply a refinement of past responses, the broader and richer the input, the more likely we are going to make decisions that take us to new heights in growth and exciting, positive results.

At Genesis, we have been lucky enough to find technology partners who are able to provide solutions that can take us beyond old, stale ways of thinking and more importantly allow us to creatively and rapidly gather rich inputs from a broad range of stakeholders. These inputs are important whether we are solving problems, taking decisions or crafting new strategies – and we would be happy to see how we, or our partners, could help you to gain these benefits. Call or mail me for a discussion or demonstration of some of these tools.

Let me leave this summary with (my interpretation) of the thoughts of 3 of the young global leaders when asked what advice they would give the “older generation” when addressing the tough issues of today:

  • Listen: to everyone, not just your colleagues in the boardroom. Listen to youth, disenfranchised people, women, customers … really listen!
  • Do not always think linearly – think divergently and creatively.
  • Consider new technology and the scalability that can be gained through harnessing some of the tools available.
Occupy Davos supporters in their "igloo"

 

Teach a man to fish, you’ll feed him for a lifetime. Expose a man to the Internet & you’ll change his life.
Rapelang Rabana

Surviving and thriving in the global economic crisis

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Leadership and strategic decision-making in the global economic crisis

The global economic crisis is impacting on almost every organisation in one form or other. From a decision making perspective, there are two broad ways in which we are impacted

  • We are being forced to make certain decisions because of the crisis. For instance:
    • Do we investigate new markets to make up for our falls in revenue from traditional sources; or increase our focus on our existing markets?
    • Should we be retrenching staff or considering other ways to reduce costs?
    • How can we discover, and capitalise on, the opportunities that are hidden within this environment?
  • Our normal decision making process is also impacted through the need for more frequent strategic decisions and greater uncertainty when making them. For instance:
    • The decision to make a capital investment in new capacity is made more complex through the difficulty in forecasting future demand.

In the latter half of 2011, a small global group of experts formed part of a digital workshopglobal crisis to consider these types of challenges that individuals and organisations face when taking strategic decisions in the economic crisis that the world is facing. The objective is to provide some actionable advice for people who are looking for ways to lead their organisation through the challenge and to grasp the new opportunities that always abound in such environments.

The full article can be found here:

We are also building a knowledge repository of useful information concerning leadership through the crisis on our web-site; and have started with some workshop ideas. Go to the page by clicking here:
Decision making in the crisis

 

 

The 3rd Habit: Using Visualisation To Combat Complexity

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The 3rd habit of highly effective decision makers:

Using Visualisation

Continuing our series on the 7 habits of highly effective decision makers, we are pleased to publish our latest slide-show “habit 3: using visualisation to combat complexity”.

In this slide-show, with the help of some StarWars characters, we demonstrate how increasing levels of complexity are making strategic decisions even more challenging. Complexity also often impacts on our ability to communicate effectively which is a crucial element in making decisions within a group; as well as in advising others about the output.

We then show how the power of visualisation can help solve this problem. It has the potential to combat complexity through simplification and visual reasoning. It is also an important tool in clarifying and enhancing communication.

A further benefit is that visualisation is an excellent catalyst for creativity – a further necessary element in strategic decision making. Creativity can dramatically improve the outcome of our decisions in a number of ways including, for instance, in the development of previously unconsidered options.

The slideshow wraps up by asking some challenging questions of the reader in considering the use of visualisation in their own organisation and how they might unlock the potential of this tool – as do the really effective decision makers.

You may download the slideshow here:

 

 

Challenges faced when taking strategic decisions: latest research

“Challenges faced when taking strategic decisions”.
Executive summary of global survey

“A critical factor in the success – and often survival – of any organisation lies in its ability to make effective strategic decisions. This skill is of increasing significance in today’s world, where the nature of these decisions is becoming more complex – as currently seen in the turmoil being experienced by the global economy.”

Below is a link to the Executive Summary of the results of our global survey into this topic. We hope you find the results both interesting and useful.

A copy of the full report will also be available on request.

Genesis Decision Survey Executive Summary December 2010

The strategic risk most often missed by Boards and Executives

The strategic risk most often overlooked by Boards and Executives


I recently came across an article written by Deloitte Consulting entitled: ” Confronting assumptions to find risk and opportunity”. The slightly ponderous heading and somewhat academic style of writing however, did not manage to hide a number of excellent thoughts and ideas.

The attached document summarises those ideas and builds upon them to suggest a tool to reduce the likelihood of succumbing to that risk.

Strategic risk most often overlooked by Boards and Executives

 

Original article “confronting assumptions to find risk and opportunity”.

 

Global economic risks 2010

Global economic risks as at September 2010

When taking strategic decisions, it is important to understand the current and future environments in which the decision will be enacted , that is we must undertake some scenario planning. The global economic context is an important input to this.

On a monthly basis, the EIU update their  global risks and rate the likelihood and impact of the top ten. The document below portrays those risk graphically and adds two further dimensions:

  • likely speed of occurrence (ie how long will we have to react) and
  • intensity of the risk or opportunity based on a judgemental combination of the other three factors .

Global economic risks and opportunities as at September 2010