Risk management in the digital age
The media love conspiracies because we the readers are fundamentally gripped by anything that threatens the stability of a group. More so when it is a group that we are part of such as the business we work for or the society we inhabit.
But the conspiracy that I am just about to reveal goes to the very heart of government and society. To make matters worse, it involves your boss and your former teachers. So it is understandable that you would In respect of the conspiracy.
No doubt it is dawning on you that the conspiracy I am about to uncover has you as the intended victim.
And if this realisation is causing your heart to sink, you had better take a seat, because you need to know that your parents were in on it too.
Please don’t think badly of those you trusted. In the main, they are as caught up in it as you are. They weren’t to know that programming / influencing you to believe that the path to success is through the avoidance of failure has been one of the most damaging acts they could do to you, and to humanity in general.
Have you been denatured?
This destructive notion has led to whole societies behaving in such a cautious and conservative manner that we have become anthropologically denatured. If you have spent your life being rewarded, congratulated and even loved for your successes, then naturally you will do everything you can to avoid failure and the associated opprobrium of those you hold in high esteem.
The reason you are reading this post (both of you) on a smart device, rather than as a cave mural is because our ancestors took risks.
This required both curiosity and courage, and often ended in failure. But over time, like the Silicon Valley Lean Startup model, they used failure to lay the boundaries for the path to success.
So, one might say that risk management in the digital age is not about the avoidance of risk, or even its elimination or minimisation. In order to acquire value, we increasingly need to acquire risk, and fail more frequently. Developing a prototype using emerging technologies is taking a risk. As is acquiring a fledgling startup that has yet to turn a profit. Both may fail, or you may win big. In either case, you will have acquired wisdom capital, and consequently the path to success becomes that bit more defined.
This will no doubt unsettle many Chief Risk Officers and Chief Finance Officers. And possibly even regulatory bodies as well.
But the reality is that the industrial era, with all its manufactured certainty, is over. No longer can you invest, say, in a car factory knowing full well there will be a demand for cars to recover the costs and more over the following decades.
A return to uncertainty
The industrial era aside, humanity has lived with uncertainty throughout its existence. Having a couple of near death experiences per day was quite common. However, over the last two hundred years we have engineered a high degree of certainty that has given rise to such management concepts as strategic planning, discounted cash flows and a belief that what has made us successful in the past will continue to make us successful in the future.
The challenge as we enter the digital age is that we are moving back into an era of uncertainty. But thanks to globalisation and technological connectivity this uncertainty is now amped up on steroids.
We are now entering a period of hyper-uncertainty.
The opportunities and threats will appear more frequently and in forms we will not be expecting. We need a new and more adaptable business model.
On the digital savannah, which is our new environment, the snapping of a twig or the faint growl of an animal may well be a weak signal for tribal / organisational / societal destruction. Or even a weak indicator of opportunity.
It’s time to become an extreme athlete
Risk management will require a high degree of situational awareness. Tactics and strategy are starting to converge. This doesn’t mean that we must become failure-loving and reckless. No. It might be better to think of ourselves as extreme athletes, or stuntmen. To the outsider, they appear to be doing dangerous things. But they are in fact the most risk conscious of all, and prepare for their astounding feats accordingly. The difference between them and most of us is that they operate in a more dangerous terrain.
They focus on the risks that matter, and how to handle them.
But that difference is dwindling by the day. We haven’t chosen to play a more dangerous game, but like everything else as we enter the digital age, we find ourselves in a world where we are no longer in control.
The secret is to prepare for uncertainty, and to become comfortable with it. Welcome to risk management in the digital age.