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Thursday, February 22, 2018

What the VUCA Environment means to a CEO
by Brigadier General George Forsythe, Karen Kuhla and Daniel Rice


This article illustrates what VUCA looks like from the CEO’s perspective across a variety of industries, highlighting specific disruptors —technology, competitors and market forces— that are impacting their companies. We found these environmental forces to be similar to what the Army experienced after the Cold War. Emerging global threats from new competitor nations, as well as non-state actors (terrorist groups) and dynamic market forces (e.g., changing geopolitical alliances and shifting national budget priorities), led the Army leadership to think differently about national security. Advances in digital technology played an important role in allowing the Army to respond to these new threats.

Remember the days of stopping by the local 7-Eleven on the way to work for a cup of coffee, a donut and a tank of gas? That is still the primary focus of the largest franchise business in the world with 63,000 convenience stores, but the business is changing dramatically, according to 7-Eleven CEO, Joe DePinto. Joe was named the Convenience Store Petroleum (CSP) Retailer of the Year among consumer and petroleum retailers and has led 7-Eleven for 12 years. “Disruption is as great as we have ever seen it. We are seeing all aspects of VUCA.” He described the disruption brought on by e-commerce competitors and the desire to transform the company before competitors change the industry:

“We are an immediate consumption business,” he says. “We sell products that are immediately consumable, and the e-commerce businesses are starting to encroach on our space. They are in fact beginning to redefine convenience as we have traditionally known it. The company that epitomizes this is Amazon. Once an e-commerce book company, they now disrupt businesses across many channels. For instance, Amazon’s Prime business will deliver anything you want within 2 hours. In time, it will be much faster. That’s why we have been so aggressive in ramping up our digital initiatives at 7-Eleven. We’re working to move our company toward being more of a technology company that works in coordination with our traditional convenience stores. Customers can now order products from 7-Eleven that are picked up by Post Mates or some of our other partners, and then delivered to the customer within 30 minutes.

“Additionally, to offer increased convenience, we’re getting into the ‘click-and-pick’ business where customers will be able to order online or through our app, come to our stores, and the product will be available for them immediately to pick up, having already been paid for. We are also focused on utilizing our stores as distribution points for other businesses. Customers can have their boxes shipped to a local 7-Eleven, and can pick them up at their convenience. Finally, we are working on digital payment options that are multiple and varied. Today’s customer wants different payment options. We need to provide them solutions to pay the way they want. So, we have all of this going on. It’s really being driven by the customer and new e-commerce entrants. It’s forcing businesses like 7-Eleven to change the way we have done things in the past.”

Bob Weidner, President and CEO of the Metals Services Center Institute (MSCI), the trade group representing the industrial metals supply chain in North America, shared a story of how adaptive manufacturing and 3-D printing might disrupt the traditional industrial metals manufacturing process in the industry. This disruption illustrates dramatic changes in the way industrial metals manufacturing firms think about business going forward.

A relatively new CEO to this particular service center was attending one of his first MSCI conferences. And on that program, we actually had a speaker talking about additive manufacturing and 3-D printing. Again, that would not necessarily be the content at a typical trade association’s programming, but you know, I believe we have delegates in a ballroom for a finite period of time. Bringing new ideas is part of our value add – because we can see the world, by definition, through a very broad lens. We are looking at the world through a producer’s lens. Through a service center’s lens. We are looking at it through a lens of carbon steel, stainless steel and aluminum. And, again, our value is to identify on the horizon things that are going to be fundamentally changing their businesses.

The CEO went back to his company, pulled together his senior leaders and asked the question, “What do you guys know about 3-D printing and additive manufacturing?…I just came from an MSCI conference where I heard enough in the hour-long presentation that basically told me I don’t know what I don’t know, so I want you all to put together a little team and come back in 6 to 9 months (whatever the time frame was.) Come back with a plan for what our company should be doing in this space.” Flash forward – that company recently bought a 3-D printing company.

Bob Leduc, President of Pratt & Whitney, with 2016 sales of $15 billion and 38,000 employees, described how the rapid pace of technological advances in the jet engine industry is requiring his company to become nimble in the face of a historic growth rate in commercial aviation, advancements in technology, and increasingly stiff competition.

“There is no question that we are in a VUCA environment right now,” he says. “When you think about our business, we’ve got a very complicated landscape. We have established competitors, but also emerging competitors, particularly in China and Russia. We have technology that is constantly advancing, and we have commercial and military customers redefining what their business models are and [what] they value now vs. what they previously did. So basically, the whole landscape is moving on us in many different directions and, because of that, we needed to foster a culture that would allow the organization to move quickly.

Mike Fucci, Chairman of Deloitte, with 84,000 employees and $18 billion in revenue, spoke about how the changing nature of work and advanced technology is altering customer expectations in the professional services market.

“I’d say the same things that are affecting our clients are affecting us, which is artificial intelligence, robotics and cognitive technology. Our clients are struggling with the question of how they incorporate these innovative technologies into their day-to-day operation. Therefore, if we’re going to consult with them, we need to be ahead of the curve and help them decide how they use this technology. The days when you got by using just the experience you had are gone. We have to anticipate things that aren’t even fully baked yet, but it’s mostly around technology. I call it the—‘everything is a what-if scenario.’

“[I]t’s almost a 180-degree difference [from when I joined the firm] as to what people need to be learning and how they learn. We don’t work in offices anymore. We have people in London, on the phone with people in New York…people in South Carolina. The way we work is so different that training and learning (are different). It’s more like an extension of college, as opposed to a way to actually help you build skills that help clients solve problems. When people enter different levels of their career, like we do a lot of work with new senior managers and new partners, it’s helping them learn how to operate differently in those roles, and it’s not just that what got you to where you were doesn’t work at the next level. It used to be that that technical experience was kind of all you needed—you had a deep knowledge in something and you brought that knowledge to clients. We have to stay in front of disruption with our clients, and as the chairman, one of the things that actually concerns me a lot is how do we govern over disruption. It’s hard enough to manage over disruption. How do we govern over disruption? So, how do I build really nimble leaders to be able to address a little bit of the unknown? That’s why the VUCA analogy resonates with me, because it’s really more about building leadership than it is about building technical skills.

These examples illustrate how executives understand their dynamic business environments. They all talk about the accelerating rate of change caused by advances in technology, which have brought new competitors into their market and forced a rethinking about the nature of work in their companies. In the next three articles, we will share the ways these leaders are transforming their organizations to respond to these disruptions.

Fuente: Chief Executive

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    .·. Dr. Miguel Ángel MEDINA CASABELLA, MSM, MBA, MHSA .·.
    Especialista Multicultural Global en Management Estratégico, Conducta Organizacional, Gestión del Cambio e Inversiones, graduado en University of California at Berkeley y The Wharton School (University of Pennsylvania)
    Consultor en Dirección General de Cultura y Educación de la Provincia de Buenos Aires
    Miembro del Comité EEUU del Consejo Argentino para las Relaciones Internacionales
    Representante de The George Washington University para LatAm desde 1996
    Ex Director Académico y Profesor de Gestión del Cambio del HSML Program para LatAm en 
    The George Washington University (Washington DC)
    CEO, MANAGEMENT SOLUTIONS GROUP LatAm
    Skype: medinacasabella


    MANAGEMENT SOLUTIONS GROUP LatAm ©
    es una Consultora Interdisciplinaria cuya Misión es proveer
    soluciones integrales, eficientes y operativas en todas las áreas vinculadas a:

    Estrategias Multiculturales y Transculturales, Organizacionales y Competitivas,
    Management Estratégico,
    Gestión del Cambio,
    Marketing Estratégico,
    Proyectos de Inversión,
    Gestión Educativa,
    Capacitación

    de Latino América (LatAm), para los Sectores:

    a) Industria y Servicios,
    b) Universidades y Centros de Capacitación,
    c) ONGs y Gobiernos.
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    Friday, February 9, 2018

    Can you do VUCA? 5 Key Strategies for Success
    by Brigadier General George Forsythe, Karen Kuhla and Daniel Rice


    “Disruption is as great as we have ever seen it,” says Joe DePinto, CEO of 7-Eleven. “We are seeing all aspects of VUCA.”

    The U.S. Army coined the acronym VUCA in the 1990s to describe the post-Cold War operational environment: Volatile, Uncertain, Complex and Ambiguous. Facing a VUCA environment, the Army developed doctrines and procedures that allowed leaders at all levels to respond effectively.

    The idea of VUCA has since been embraced by leaders in all sectors of society, in particular the current business world, to describe the nature of the world in which they operate:

    • The accelerating rate of change (volatility)
    • The lack of predictability (uncertainty)
    • The interconnectedness of cause-and-effect forces (complexity)
    • And the strong potential for misreads (ambiguity).

    Certainly, 7-Eleven is not alone. Thomas Friedman, in his recent book, “Thank You for Being Late,” argues that most organizations face significant environmental complexity in “the age of accelerations” and identifies three main drivers of our contemporary VUCA environment: the exponential growth of technology, globalization and the environment (climate change, population growth and migration), which all are accelerating simultaneously. This “Supernova”—as Friedman calls the convergence of these drivers—has created a VUCA environment for nearly every business and every industry.

    How do CEOs and their companies understand the challenges of a VUCA environment? How do they adapt and innovate quickly to respond appropriately? To answer these questions, we interviewed 6 CEOs/Chairman/Presidents from a variety of industries:
    1. Joe DePinto – CEO, 7-Eleven
    2. Mike Fucci – Chairman, Deloitte
    3. Tony Guzzi – CEO, EMCOR
    4. Margaret Keane – President and CEO, Synchrony Financial
    5. Bob Leduc – President, Pratt & Whitney, and
    6. Bob Weidner – President and CEO, MSCI
    We asked each to describe their business environment and discuss how they are leading their companies to thrive in the face of massive disruptions.

     This is the first of a series of six articles focusing on what the CEOs did to adjust to their VUCA environment, how it worked and what they learned from their efforts that might be helpful to other CEOs. We hope our readers will find this series, drawn from personal stories, to be of benefit as they lead their companies and teams in today’s VUCA environment.

     We begin with a case study drawn from the U.S. Army’s creation of and experience with VUCA to introduce several key concepts that will provide a framework for subsequent articles. In addition to the CEO interviews, we also interviewed General (retired) Dennis Reimer, a former Chief of Staff of the U.S. Army. General Reimer led the Army of over 1 million soldiers in the latter half of the 1990s and presided over the service’s transformation following the end of the Cold War. Under General Reimer’s command, the concept of “VUCA” was created and the Army’s doctrine and procedures to deal with a VUCA environment were formulated.

    General Reimer said the Army’s VUCA environment began in December 1989 with the fall of the Berlin Wall and subsequent end of the Cold War. The Army had spent decades building what he called “a threat-based force,” with a single focus on deterring and, if necessary, defeating, a military threat from the Soviet Union. The demise of the Soviet Union ushered in a New World Order, which President George H. W. Bush at the time said was “long on New and short on Order.” Uncertainty about potential threats meant the Army had to be ready for a full spectrum of conflict, from low-intensity conflicts to nuclear war. To respond to this new VUCA environment, the Army moved from a threat-based force to a capability-based force, prepared to “go anywhere in the world, with the right force.” And so, the Army had to be able to mix and match forces to adapt to a more complex and uncertain operational environment. “When you go from something like a threat-based force to a capabilities-based force and all that entails, you end up really doing a transformation,” said General Reimer.

    How did the Army transform? According to Reimer, the answer is by using 5 key strategies to position the Army for future success. These strategies have much in common with what business leaders are doing to make their organizations more adaptive.

    1. Shaping the Culture around Mission and Values.

    Executive leaders shape the organizational culture. Particularly during times of rapid change, it is critical for the chief executive to pay attention to culture. General Reimer noted one cannot change everything at once—the CEO must keep the organization focused. As the Army’s chief of staff, he chose to focus on mission and values and encouraged leaders at all levels to live by, and reinforce, the organization’s values. He cautioned that without a strong emphasis on mission and values, periods of rapid change might create negative leadership conditions within the organization. The Army experienced such challenges in the 1990s when the Army was simultaneously downsizing its end-strength and reorganizing the force, which led General Reimer to redouble his efforts to promote the Army’s core values.

    2. Leveraging Technology.

    For General Reimer, technology was a key driver in both the acceleration of change and the success of the Army’s adaptation. “We decided we wanted to change the way we operate. If we didn’t change, we were going to lose the advantage we had over the other armies. And so, we set about digitizing the Army.” The Army planned to use digital technology to create a complete picture of the battlefield and, thus, gain an advantage over potential adversaries. “We figured if we could answer three questions: Where am I? Where are my buddies? And where is the enemy? Then we could really change the way the army fights.”

    3. Aligning Organizational Structures.

    The need for flexibility and rapid response led to an examination of how the Army was structured to be able to respond to a wide range of possible threats. The Army has six major levels of command from largest to smallest:

    Army > Corps > Division > Brigade > Battalion > Company

    The Army division (10,000-18,000 soldiers) had been the force that was deployed to face known Soviet threats, but after the Cold War ended, smaller brigade-sized forces (3,000-5,000 soldiers) afforded greater flexibility, and they could be mixed and matched to meet specific threats. This was no small change. This transformation required changes in training, leader development, supply chain management, and, inevitably, how we fight and win our wars. There is no doubt that a brigade-based structure is more agile than the “Cold War” paradigm of the division-based force. But to make that move would require time and effort and possibly distract from current missions. The problem was the personnel and leader-development systems were all geared to support a division-based structure. So, General Reimer asked his senior commanders to read about, and reflect on, the idea of change. In the end, they decided on a hybrid approach that aligned structure to current mission requirements.

    There was some merit to going to a brigade-based force. The problem we had—and the problem I particularly had, was I couldn’t quite figure out how to make the leader development work for that size or that type of an Army. We had certain leader development programs we wanted our leaders to go through. And when you remove a level of command, then you ask yourself, “How do you go from the brigade-level to the Corps-level,” for example. And it didn’t work. So, we backed off of that. But what we did was to leave the division structure in place and to mix and match a lot more. And that’s the way most of the wars, or most of stability operations in Afghanistan, Iraq—well, the second war and then also, the stability force, have been fought. You use that mix and match methodology and it seems to be working out all right.

    4. Establishing a Learning Organization.

    In the 1990s, the Army experimented with these new ideas—creating the digital battlefield and operating with nimble tactical formations. The Army established a test bed at Fort Hood, Texas to try out these concepts which involved lots of people trying new ideas, gathering data, and reporting back to the Army the results of the tests. Despite some naysayers, the results of the tests were positive enough for the Army to move forward. As General Reimer said, “we just made the decision that we’re close enough. We’re at the 90% solution. Let’s just take it forward. And I’m glad we did.”

    Next, the Army ran a series of war game simulations to test the concepts against a variety of current and future threat scenarios. After every exercise, large or small, all leaders used after-action reviews to learn and implement lessons learned in future operations. The objective was to learn how the new ideas stacked up against alternative threats, to ensure the transformed Army would embody the characteristics that would meet the challenges of this VUCA world. Additionally, Army units incorporated the new concepts into tactical training in force-on-force simulated combat at the combat maneuver training centers to prepare leaders and units for the new operational environment. Throughout the transformation process, General Reimer clearly communicated the need for change and encouraged experimentation and information sharing within the Army.

    5. Leader Development.

    General Reimer reflected on the importance of leader development within the Army, emphasizing the necessity for a continuous and progressive system of professional education, training and job experiences to prepare leaders throughout the chain of command for the management of change. As the CEO, he also emphasized the importance of succession planning for the most senior executive positions. He told the story of how four successive Army chiefs of staff progressed through critical assignments—deputy chief of staff for operations, vice chief of staff, and chief of staff—and that continuity in top leadership allowed the Army to maintain the transformation’s momentum and continuity from the end of the Cold War well into the post 9-11 era.

     The 5 strategies presented above provide a framework for examining what works today in the business world. In subsequent articles, we will look at how corporate CEOs understand their VUCA environments and are positioning their companies to respond effectively. What does VUCA look like today, and how are business leaders adapting to ensure success? Do the strategies used by the Army after the Cold War make sense in today’s business world?

    Fuente: Chief Executive

    Haciendo click en cada uno de los links siguientes, Contenidos de nuestros 
    TALLERES DE CAPACITACIÓN IN COMPANY, "A MEDIDA" 
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      Consultas al email: mamc.latam@gmail.com


      .·. Dr. Miguel Ángel MEDINA CASABELLA, MSM, MBA, MHSA .·.
      Especialista Multicultural Global en Management Estratégico, Conducta Organizacional, Gestión del Cambio e Inversiones, graduado en University of California at Berkeley y The Wharton School (University of Pennsylvania)
      Consultor en Dirección General de Cultura y Educación de la Provincia de Buenos Aires
      Miembro del Comité EEUU del Consejo Argentino para las Relaciones Internacionales
      Representante de The George Washington University para LatAm desde 1996
      Ex Director Académico y Profesor de Gestión del Cambio del HSML Program para LatAm en 
      The George Washington University (Washington DC)
      CEO, MANAGEMENT SOLUTIONS GROUP LatAm
      Skype: medinacasabella


      MANAGEMENT SOLUTIONS GROUP LatAm ©
      es una Consultora Interdisciplinaria cuya Misión es proveer
      soluciones integrales, eficientes y operativas en todas las áreas vinculadas a:

      Estrategias Multiculturales y Transculturales, Organizacionales y Competitivas,
      Management Estratégico,
      Gestión del Cambio,
      Marketing Estratégico,
      Proyectos de Inversión,
      Gestión Educativa,
      Capacitación

      de Latino América (LatAm), para los Sectores:

      a) Industria y Servicios,
      b) Universidades y Centros de Capacitación,
      c) ONGs y Gobiernos.
      Posted by at No comments:
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      Thursday, February 8, 2018

      Make Strategic Thinking part of your job
      by Ron Carucci


      It’s a common complaint among top executives: “I’m spending all my time managing trivial and tactical problems, and I don’t have time to get to the big-picture stuff.” And yet when I ask my executive clients, “If I cleared your calendar for an entire day to free you up to be ‘more strategic,’ what would you actually do?” most have no idea. I often get a shrug and a blank stare in response. Some people assume that thinking strategically is a function of thinking up “big thoughts” or reading scholarly research on business trends. Others assume that watching TED talks or lectures by futurists will help them think more strategically.

      How can we implement strategic thinking if we’re not even sure what it looks like?

      In our 10-year longitudinal study of over 2,700 newly appointed executives, 67% of them said they struggled with letting go of work from previous roles. More than half (58%) said they were expected to know details about work and projects they believed were beneath their level, and more than half also felt they were involved in decisions that those below them should be making. This suggests that the problem of too little strategic leadership may be as much a function of doing as of thinking.

      Rich Horwath, CEO of the Strategic Thinking Institute, found in his research that 44% of managers spent most of their time firefighting in cultures that rewarded reactivity and discouraged thoughtfulness. Nearly all leaders (96%) claimed they lacked time for strategic thinking, again, because they were too busy putting out fires. Both issues appear to be symptoms masking a fundamental issue. In my experience helping executives succeed at the top of companies, the best content for great strategic thinking comes right from one’s own job.

      Here are three practical ways I’ve helped executives shift their roles to assume the appropriate strategic focus required by their jobs.

      Identify the strategic requirements of your job.

      One chief operating officer I worked with was appointed to her newly created role with the expressed purpose of integrating two supply chain organizations resulting from an acquisition. Having risen through the supply chain ranks, she spent most of her time reacting to operational missteps and customer complaints. Her adept problem-solving skill had trained the organization to look to her for quick decisions to resolve issues. I asked her, “What’s the most important thing your CEO and board want you to accomplish in this role?” She answered readily, “To take out duplicate costs from redundant work and to get the organization on one technology platform to manage our supply chain.” Her succinct clarity surprised even her, though she quickly realized how little she was engaged in activities that would reach that outcome. We broke the mandate into four focus areas for her organization, realigned her team to include leaders from both organizations, and ensured all meetings and decisions she was involved in directly connected to her mandate.

      Unfortunately, for many executives, the connection between their role and the strategic contribution they should make is not so obvious. As quoted in Horwath’s study, Harvard Business School professor David Collis says, “It’s a dirty little secret: Most executives cannot articulate the objective, scope, and advantage of their business in a simple statement. If they can’t, neither can anyone else.” He also cites Roger Martin’s research, which found that 43% of managers cannot state their own strategy. Executives with less clarity must work harder to etch out the line of sight between their role and its impact on the organization’s direction. In some cases, shedding the collection of bad habits that have consumed how they embody their role will be their greatest challenge to embodying strategic thinking.

      Uncover patterns to focus resource investments.

      Once a clear line of sight is drawn to a leader’s strategic contribution, resources must be aligned to focus on that contribution. For many new executives, the large pile of resources they now get to direct has far greater consequence than anything they’ve allocated before. Aligning budgets and bodies around a unified direction is much harder when there’s more of them, especially when reactionary decision making has become the norm. Too often, immediate crises cause executives to whiplash people and money.

      This is a common symptom of missing insights. Without a sound fact and insight base on which to prioritize resources, squeaky wheels get all the grease. Great strategic executives know how to use data to generate new insights about how they and their industries make money. Examining patterns of performance over time — financial, operational, customer, and competitive data — will reveal critical foresight about future opportunities and risks.

      For some, the word insight may conjure up notions of breakthrough ideas or “aha moments.” But studying basic patterns within available data gives simple insights that pinpoint what truly sets a company apart. In the case of the supply chain executive above, rather than a blanket cost reduction, she uncovered patterns within her data that identified and protected the most competitive work of her organization: getting products to customers on time and accurately. She isolated those activities from work that added little value or was redundant, which is where she focused her cost-cutting efforts. She was able to dramatically reduce costs while improving the customer’s experience.

      Such focus helps leaders allocate money and people with confidence. They know they are working on the right things without reacting to impulsive ideas or distracting minutia.

      Invite dissent to build others’ commitment.

      Strategic insight is as much a social capability as it is an intellectual one. No executive’s strategic brilliance will ever be acted upon alone. An executive needs those she leads to translate strategic insights into choices that drive results. For people to commit to carrying out an executive’s strategic thinking, they have to both understand and believe in it.

      That’s far more difficult than it sounds. One study found that only 14% of people understood their company’s strategy and only 24% felt the strategy was linked to their individual accountabilities. Most executives mistakenly assume that repeated explanations through dense PowerPoint presentations are what increases understanding and ownership of strategy.

      To the contrary, people’s depth of commitment increases when they, not their leader, are talking. One executive I work with habitually takes his strategic insights to his team and intentionally asks for dueling fact bases to both support and refute his thinking. As the debate unfolds, flawed assumptions are surfaced and replaced with shared understanding, ideas are refined, and ownership for success spreads.

      Sound strategic thinking doesn’t have to remain an abstract mystery only a few are able to realize. Despite the common complaint, it’s not the result of making time for it. Executives must extract themselves from day-to-day problems and do the work that aligns their job with the company’s strategy. They need to be armed with insights that predict where best to focus resources. And they need to build a coalition of support by inviting those who must execute to disagree with and improve their strategic thinking. Taking these three practical steps will raise the altitude of executives to the appropriate strategic work of the future, freeing those they lead to direct the operational activities of today.

      Fuente: Harvard Business Review

      Haciendo click en cada uno de los links siguientes, Contenidos de nuestros 
      TALLERES DE CAPACITACIÓN IN COMPANY, "A MEDIDA" 
      de las necesidades de su Organización:








        Consultas al email: mamc.latam@gmail.com


        .·. Dr. Miguel Ángel MEDINA CASABELLA, MSM, MBA, MHSA .·.
        Especialista Multicultural Global en Management Estratégico, Conducta Organizacional, Gestión del Cambio e Inversiones, graduado en University of California at Berkeley y The Wharton School (University of Pennsylvania)
        Consultor en Dirección General de Cultura y Educación de la Provincia de Buenos Aires
        Miembro del Comité EEUU del Consejo Argentino para las Relaciones Internacionales
        Representante de The George Washington University para LatAm desde 1996
        Ex Director Académico y Profesor de Gestión del Cambio del HSML Program para LatAm en 
        The George Washington University (Washington DC)
        CEO, MANAGEMENT SOLUTIONS GROUP LatAm
        Skype: medinacasabella


        MANAGEMENT SOLUTIONS GROUP LatAm ©
        es una Consultora Interdisciplinaria cuya Misión es proveer
        soluciones integrales, eficientes y operativas en todas las áreas vinculadas a:

        Estrategias Multiculturales y Transculturales, Organizacionales y Competitivas,
        Management Estratégico,
        Gestión del Cambio,
        Marketing Estratégico,
        Proyectos de Inversión,
        Gestión Educativa,
        Capacitación

        de Latino América (LatAm), para los Sectores:

        a) Industria y Servicios,
        b) Universidades y Centros de Capacitación,
        c) ONGs y Gobiernos.
        Posted by at No comments:
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        Friday, February 2, 2018

        Global Risks in 2018: what lies ahead?


        What are the biggest risks that individuals, businesses and governments face in the year ahead, and beyond? According to the 2018 Global Risks Report, published by the World Economic Forum, the environment, cyber security and geopolitics are the areas drawing the most concern.

        The World Economic Forum —which holds its annual meeting next week in Davos, Switzerland— develops the Global Risks Report in collaboration with Wharton’s Risk Management and Decision Processes Center.

        “The big message that came out of this report is the tremendous importance of the environment” as an area to watch, said Howard Kunreuther, Wharton professor of operations, information and decisions, and co-director of the Risk Management and Decision Processes Center. “It’s not that that wasn’t [a concern] earlier, but it certainly didn’t have as high a profile”.

        The other big takeaway from this year’s report is how various types of risks are interdependent, which has implications for preparation and mitigation, Kunreuther said. “You begin to see clear arrows that go from climate change to food security, to natural disasters, to droughts, and to a set of things that can happen”.

         To be sure, cyber security, data fraud and theft don’t necessarily link immediately to something like natural disasters. But if one of those events leads to some larger, overall instability, the outcomes could be worse than expected. “[Risk interdepenency] is a critical aspect that risk managers need to think about on a global scale. One thing can lead to other things and have a cascading effect,” said Jeffrey Czajkowski, managing director of the Risk Management and Decision Processes Center. “It’s critical for people to get their heads around it and start to think about how to better manage these risks”.

         Kunreuther and Czajkowski discussed the key takeaways from the 2018 Global Risks Report on Wharton Business Radio. The report looks at 30 different risks among five major categories – economic, environmental, geopolitical, social and technological. It draws upon surveys of risk experts across the globe.

        “It becomes a building block for many organizations that start to think about what they’re going to do in the way of [a risk management] strategy for the next year, and hopefully for the longer term”, said Kunreuther.

         “Pushing Our Planet to the Brink”

        Heading the list of the risks in 2018 are environmental, cyber security and geopolitical risks. “We have been pushing our planet to the brink and the damage is becoming increasingly clear,” the report states. “Biodiversity is being lost at mass-extinction rates, agricultural systems are under strain and pollution of the air and sea has become an increasingly pressing threat to human health".

        On cyber security, the report notes, “Attacks against businesses have almost doubled in five years, and incidents that would once have been considered extraordinary are becoming more and more commonplace.” On the geopolitical front, “rules-based approaches have been fraying,” the report says. “Re-establishing the state as the primary locus of power and legitimacy has become an increasingly attractive strategy for many countries, but one that leaves many smaller states squeezed as the geopolitical sands shift”.

         This year’s report introduces three new sections — Future Shocks, Hindsight and Risk Reassessment — in an attempt to provide “a new lens through which to view the increasingly complex world of global risks.” The Hindsight section, for example, revisits past reports “to gauge risk-mitigation efforts and highlight lingering risks that might warrant increased attention.” The 2017 Global Risks Report listed “economic inequality, societal polarization and intensifying environmental dangers” as the top three trends that will shape global developments over the next decade.

        Among the greatest risks that the report focuses on are geopolitical ones such as tensions between North Korea and South Korea, said Kunreuther. The World Economic Forum brings world leaders to the table where such issues could be discussed, he added. “We want to take down a lot of the blinders here and make sure the agendas are such that we can think out of the box”.

        Cjazkowski pointed out that this year’s report also highlights the need to invest in resiliency. “There’s a big push to make communities, nations and individuals more resilient to a lot of these different risks. But the big question is: How do you pay for that? Where are you going to get the financing to [promote] resiliency?” The report is taking a first step in trying to understand those issues, he noted.

         “It Won’t Happen to Me”

        Bias plays a big role in how potential risks are evaluated, and the report focuses on that aspect as well. ”You need to take a long-term view of a lot of these risks and how you’re going to deal with them,” said Czajkowski. “Oftentimes, people, organizations or governments have problems thinking with a long-term view because of short-term incentives or the short-term decisions they’re dealing with”.

        “It tends [to be the case] that only after an event happens do people pay attention,” Kunreuther noted, adding that the report identifies this problem as “availability bias.” “[The report] is suggesting that organizations and individuals pay better attention beforehand. We can’t think of a more important message to highlight”.

        For example, he says, people may hear that there is a one in 100 chance that a major hurricane may strike their area in a given year. That may seem like a low probability to many. But, “if you’re living in the same house for 25 years, there’s a greater than one in five chance of having something like this happen”.

        Kunreuther explained how such messaging could lead to some proactive planning. “Can you take steps when you don’t think [a disaster] is going to happen?” he asked. “The issue of black swans gets brought up all the time – ‘It’s such a low probability event that we’re not going to think about it”.

        Cjazkowski offered an example of how such biases play out. The Risk Center typically classifies natural disasters as “low-probability, high-impact events” for an individual or a community. But on a global scale, such incidents become a high probability, he noted. “It is going to happen — but where that’s going to be is a different question. That is where this cognitive bias comes into play”.

        Kunreuther highlighted the critical role of local officials in taking the longer-term view. “The Global Risks Report is really trying to overcome the ‘NIMTOF’ acronym – “Not in my term of office,” he said. “[We need] to get people to think there’s a longer term than just getting reelected, and that they have to think about putting money into [areas like] infrastructure”.


        Fuente: The Wharton School (UPenn)

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          .·. Miguel Ángel MEDINA CASABELLA, MSM, MBA, MHSA .·.
          Especialista Multicultural Global en Management Estratégico, Conducta Organizacional, Gestión del Cambio e Inversiones, graduado en University of California at Berkeley y The Wharton School (University of Pennsylvania)
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