Getting to grips with uncertainty

Written by: Dave Waller Posted: 27/11/2017

BL53_uncertaintyThat we live in uncertain times is a given, but it means companies are having to reinvent the way they think about the future

It’s now 15 years since former US Secretary of State Donald Rumsfeld uttered his infamous musings on uncertainty. “We know there are known unknowns,” he began, when speaking about the lack of evidence connecting Saddam Hussain to weapons of mass destruction and terror groups. “That is to say, we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know… It is the latter category that tend to be the difficult ones.”

Rumsfeld’s head-scratching logic seems particularly apt for today’s world – one that’s travelled so far along the uncertainty trail that we’ve apparently turned ‘post-fact’. We have so many known unknowns right now – from the destructive force of hurricanes, to the sweeping rise of the far right.

How about a Brexit cliff lying up ahead, or warnings of failing food crops, oil supplies and water? Or a worldwide population crisis, the rise of global terror, and a game of nuclear brinkmanship being played out by the figureheads of the US and North Korea. 

Then there are the unknown unknowns, what Rumsfeld called the ‘difficult ones’. These days it’s almost impossible to have any solid sense of where we might be in 
12 months – if indeed we’re here at all. 

“In the past, a successful business could have continued for 10 to 20 years, or even generations, largely unchanged,” says Ray Hammond, a futurologist who works with businesses to identify the challenges they can expect to face. “This isn’t the case today.”

One reason for this shift is what fellow futurist Ray Kurzweil calls the Law of Accelerating Returns. This states that in one decade, our society now sees the kind of technological advances that used to take a century. This rapid escalation in capability is leading to an increasingly connected and inter-dependent globe, one that’s forced to shift and reset itself every time a new breakthrough arrives. 

“We live now both in reality and virtual reality,” says Allam Zia, Senior Consultant at BDO Greenlight. “When you add in tech disrupters, cyber-threats and the onset of artificial intelligence – which is scaring the living daylights out of some people and raising fears about jobs – it all adds to that feeling of us living in highly uncertain times.”

It’s worth pointing out at this stage that nothing is actually ever certain, we just like to think it is. Even when events are going smoothly, the only certainty is that they will, at some point, dive down the dunny. 

Think back 30 years to Black Monday. US institutional investor Ted Aronson was one of many who, on the back of the Reagan boom, woke up that October morning with no idea a crash was coming. “We identify patterns and trends, but there’s a whole craziness going on in the market that’s more akin to The Twilight Zone,” he reasoned in its aftermath. 

Aronson was told by one statistician that the 1987 crash was a 25-sigma event – 25 standard deviations away from the mean. In other words, it was virtually impossible.

Learning curve

So how can business best function at a time when our experience of such unknown unknowns is being turbo-powered by the matrix? Ray Hammond believes the only way to deal with the current level of uncertainty is through continuous, broad, personal education.

“That’s the only antidote that enables people to keep up and take advantage of change,” he says. “The worst thing you can do is to go into work saying: ‘Thank goodness I’m done with school’. That attitude is the kiss of death today.”

Organisations can change their approach too. In his book, Our Iceberg Is Melting, Dr John Kotter told the story of a penguin that discovered its colony was in imminent trouble, and how it got others to overcome their fear of change and do something about it. 

Kotter had spent 40 years studying the habits of leaders and organisations in the creation of his fable, and cooked up eight steps for dealing with change. They included: creating urgency; getting champions and sponsors involved; creating a vision for change that you can share; communicating that vision; and creating quick wins that show the benefits are being delivered as you go.

It’s all about being prepared. “If you cross the road without looking, you’re inviting a problem,” says Wayne Atkinson, Group Partner at law firm Collas Crill. “Business is just a much more complicated version of that. Make sure everyone’s aware of the wider conditions, and show your workings. You can’t guess the pound will shift against the dollar. But being able to show you have processes in place is part of your responsibility as a director.”

Yet not everyone is convinced that traditional change management methods are enough these days. Author and futurist Mark Stevenson believes that any company wishing to tackle uncertainty has to build a culture that has a healthy relationship with the future. 

“Companies find themselves blindsided by uncertainty because they’re not very literate about the questions the future is asking them,” he says. “And the questions it’s asking business now are: what are you going to do about your responsibility to the environment? What about your role as citizens, facing the retreat of democracy and the rise of inequality? And what are you going to do about the fact that, because the world is so uncertain and all this is happening, nearly 90 per cent of employees hate their jobs?”.

Embracing change

Stevenson is basically saying that any company wishing to deal with uncertainty simply has to lean into it. By contrast, anyone still clinging to the idea of shareholder value as a priority won’t be adopting the kind of long-term, systemic thinking that these ever-shifting sands require. 

Says Stevenson: “A number of CEOs I sit down with will tell me: ‘I can’t do anything. My hedge fund investors will crucify me if I try to do the right thing.’ But ask Unilever CEO Paul Polman and he’d say he spends his time courting the investors he wants.”

Stevenson likes to use Unilever as an example. A company with two billion customers, it uses its scale to be a force for change in social justice, inequality and climate change, and to become an environmentally positive company – making a net contribution to the world’s eco-system, not taking from it – by 2030.

Stevenson reckons that, since he invested in Unilever a couple of years ago, its share price has gone up 50 to 60 per cent. 

“On the one hand, that’s because Unilever is now thinking systemically, and so is managing itself better,” he says. “And because the company is taking those citizenship issues seriously, guess what? It’s attracting all the best young talent. Management teams that address these questions find themselves outperforming the market time and time again.” 

As the Unilever example suggests, uncertainty isn’t necessarily a bad thing. In the wake of Black Monday, an army of economists warned that the financial world was coming to an end. Yet large-cap stock prices rose about 12 per cent in 1988, and around 27 per cent in 1989. Investors such as Warren Buffett used the crash as a buying opportunity, picking up assets they’d long had their eye on, suddenly at rock-bottom prices. 

Amazon would later prove able to ride out the dotcom crash at the turn of the century, by focusing its business plan on brand recognition, not short-term income, even as its shares dropped to as low as $10. According to Forbes, those shares may be worth $2,000 by 2019. 

Uncertainty continues to breed opportunity today. The likes of Uber and Airbnb have famously taken advantage of change, introducing new models that only serve to drive the uncertainty even further.

New reality

So, how well are other more traditional companies preparing themselves in this new reality? “We’re finding companies are becoming much better at preparing for change, because it’s inevitable and they have to,” says Allam Zia. “Law firms wouldn’t have had permanent continuous improvement functions 10 years ago. They do now.”

Stevenson highlights one broader trend that may be bolstering us all against uncertainty. The world, he reasons, is moving away from hierarchical organisations that are built on economies of scale but are vulnerable to change, towards networks that thrive on the economies of distribution. 

“Stuff like education, power and manufacturing used to be done by big monolithic organisations, but is increasingly going to be distributed, co-owned and co-managed by a host of smaller ones,” he says. 

“This networked governance and management handles uncertainty much better. It’s a more nuanced way of doing things – if one node goes down, you can get around it quite quickly.”

The overall message here, from large established firms to nimble start-ups, is that the world is moving, and you simply can’t stand there waiting for certainty to suddenly bed in. It’s all about being prepared for those unknowns, whether they’re known or not. 

As Wayne Atkinson put it, look both ways before you cross the road. And if Stevenson is right, you’d better ask yourself the real question: what contribution will you make when you reach the other side?

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