If a cyber attack took the Internet offline, how would your organization cope – especially if it is dependent on cloud computing? What if a geomagnetic storm brought down GPS and disrupted your supply chain? How resilient would your organization be in the face of a sudden currency collapse, or a huge trade war, or global travel restrictions due to a pandemic?
These risks are all examples of what Robert S. Kaplan and Anette Mikes, in a recent article for the Harvard Business Review, categorize as “external” risks. Such risks are increasingly global and systemic in nature. Yet they can present an opportunity to innovate, by seeking out examples of exceptionally risk-resilient practices.
The three-part framework of business risk proposed by Kaplan and Mikes starts with “preventable” risks, such as breakdowns in processes and mistakes by employees. Next come “strategic” risks, which a company undertakes voluntarily, having weighed them against the potential rewards.
With “external” risks, the picture is more nuanced. They are global, complex and generally go beyond a company’s scope to manage and mitigate them. Many organizations think about their resilience to major risks using tools such as stress-testing, war gaming and scenario planning – but for these tools to be effective, these global risks must first be understood in a holistic context.
Any comprehensive effort to understand interdependent and interconnected risks is typically beyond the resources and capacity of any single organization or stakeholder. This is an endeavour best carried out in a multistakeholder and interdisciplinary setting, such as the World Economic Forum’s Risk Response Network, which is comprised of over 1,000 international leaders and experts from government, industry, academia and international organizations. The Risk Response Network’s annual Global Risks Report maps the 50 most prevalent global risks and analyses their perceived likelihood and impact over a 10-year time horizon. It defines global risks as having “global geographic scope, cross-industry relevance, uncertainty as to how and when they will occur, and high levels of economic and/or social impact”. Global risks, it stresses, require a multistakeholder response.
Therefore, core to the Risk Response Network’s methodology is the recognition that we all suffer from well-established cognitive biases – such as being too confident in our predictions and overestimating our ability to control events – which stand in the way of our ability to grasp the realities of global risks. The best way to overcome cognitive biases is to become aware of them, by engaging with others who have different perspectives. The understanding of global risk that emerges from a discussion involving multiple companies, regulators, academics and civil society groups is likely to be richer than a conversation conducted inside a single organization.
Global risks present challenges that are “adaptive” rather than “technical”, in the language of Ronald Heifetz, the founder of Harvard’s Center for Public Leadership; in other words, new solutions must be invented. Given the world’s interdependence and hyperconnectedness, the first line of defence is to build resilience collectively. The World Economic Forum’s model of multistakeholder dialogue attempts to make systems as a whole more resilient by giving stakeholders a common vocabulary and mutual understanding, and building relationships of trust that can be crucial in responding to exogenous shocks.
Every business has an obvious interest in its operating environment becoming more resilient to risk. Businesses also, however, want to gain an edge on their competitors. It can be tempting to assume that a major shock, such as the sudden disappearance of the Internet, would affect all players equally. But this is not necessarily the case, as the search for adaptive solutions is an ex ante process. In the land of the blind, the one-eyed man is king; in any crisis, some organizations are going to be more resilient than others, more able to adapt quickly to difficult new realities, to find alternative ways of working and gain a competitive edge.
The quest to build resilience is, therefore, also an opportunity to discover and scale innovations. A way forward is suggested in Richard Pascale’s and Jerry and Monique Sternin’s book, The Power of Positive Deviance: How Unlikely Innovators Solve the World’s Toughest Problems, which shows how solutions to seemingly intractable problems often exist but go unnoticed.
An example: When studying malnutrition among Vietnamese children, the Sternins crossed the country village by village and noticed that in one or two villages the children seemed better nourished. On the normal (or bell curve) distribution of the weight of Vietnamese children, these well-fed children were perfect outliers, representing the “positive deviance” at the far end of the curve. There was not a greater supply of food in those villages, so what were they doing differently? The Sternins observed that parents were feeding their children several small meals each day, instead of two big meals, and mashing shrimp, crabs and greens – not usually considered suitable foods for children – into their rice. An effective solution existed, hiding in plain sight. It just needed someone to discover it and apply it on a wider scale.
There is potential for a similar process to drive innovation in the context of searching for adaptive solutions to improve risk resilience and give businesses a strategic advantage in the wake of external shock. Perhaps parts of your organization are already operating in areas where connectivity is unreliable, or GPS is spotty. What workarounds have they developed? Can their local wisdom be captured and rolled out to improve organizational resilience to cyber attacks or geomagnetic storms? Do your customers, partners and stakeholders have practices from which you can learn?
By understanding global risks and thinking deeply about your corporate practices, you may be able to innovate in ways that will improve your organizational resilience and give you a potential strategic edge. To understand those risks in the first place, though, it helps to share information, perspectives and ideas. Through its Risk Response Network and annual Global Risks Report, this is the purpose the World Economic Forum sets out to serve.
Lee Howell is Managing Director, and Head of the Risk Response Network at the World Economic Forum.
This article has been published in Caijing Magazine and in the HBRC September special issue for the World Economic Forum. It is available here.
Image: a Vietnamese father feeds breakfast to his young son REUTERS/Str Old