Strategic Risk Management: the fox and the hedgehog.

Author: Manu Steens

In this article I write my own opinion, not that of any organization.

Last week, during my vacation, I read a kind of history book. The title is ‘On Grand Strategy’ by John Lewis Gaddis.  It is about figures such as Xerxes, Napoleon, Machiavelli, Lincoln, Adams, Washington, Elisabeth, Philip II, Franklin D. Roosevelt, Von Clausewitz, … .  The great key figure, however, was a relatively unknown person, Isaiah Berlin. He was lucky enough to read ancient texts and to come up with the idea of the duality of the fox and the hedgehog in strategic thinking and acting.  In strategic leadership.

What is this two-unit, and is it always there?

The pure hedgehog is the leader who sets the goals. ‘There we go’. But he doesn’t see the obstacles.  Sometimes he is the ‘man who is always right’.  The pure fox is the man who sees the obstacles everywhere on the track, but does not naturally set goals. He does set achievable milestones however.

Often, leaders think they need to be concerned with goals, and then leave the road to them to the organization’s employees. A typical example of this was Xerxes who crossed the hellespont with a large army, while his advisor left him because he realized that the army was going to get into logistical trouble because of his gigantic magnitude.  Xerxes’ troops were eventually stopped by the Greeks.

An example of someone who did achieve his goal was Lincoln. He was a strategist at heart, in the sense that he set his goal like a hedgehog, which was to abolish slavery. He achieved that goal through devious detours, including bribery, like a fox. The following words are attributed to him:

“A compass […] will show you the geographical north from where you are, but no advice about swamps and deserts and abysses that you encounter along the way. If you run headlong forward on the way to your destination without paying attention to the obstacles and eventually sink into a swamp […] what good is it then to know where the geographic north is?”

So he knew when to consult the compass like the hedgehog, and to bypass the swamp like a fox.

This comes with an important consequence: one has to adapt the goals to the means at one’s disposal.  Because in times of scarcity, the lack of (people and) resources is one of the biggest swamps in which a hedgehog can sink.

After all, this means for risk management that this has an important place in top management.  No good hedgehog survives without a good fox by its side.  Since these two characteristics belong to a single function of strategic leadership, it can be said that there is no well-functioning organization without sound risk management.

The fox, however, is what I call strategic risk management. He will naturally maintain intense contact with the relevant operational risk management, which in itself is in direct contact with (a part of) the environment.  The fox in the strategic leader must therefore be aware of what is going on in operational risk management.

It is for this reason that we can say that an organization in which top management is involved in the risk analysis, makes an important leap in terms of risk maturity at the moment that it actively engages in it.

After the Crisis the Turnaround – Beyond the control of damage control

Author: Eric Van den Broele

To my knowledge, this book has only been published in Dutch. (Na de Crisis de Ommekeer – De controle van de damage control voorbij) That is a pity. Yet I translate the summary because of the ideas in the book. It has a lot of them. I state some of them here.

An instrument during Covid19 was to financially support the organizations to continue to pay the wages.

The question: ‘How long can an organization survive after a crisis without external help?’ has therefore remained unanswerable.

No one has a crystal ball, but support measures can be given to financially survive. They must be distributed with wisdom. To this end, a so-called ‘shock resistance score’ (https://graydon.be/nl/resources/blog/strategie/hoe-maakt-u-echt-impact-met-de-schokbestendigheidsscore) of the organizations must be examined. The question is whether the organisations that were no longer really viable before the crisis are still ‘entitled’ to a survival support measure. To this end, it is insufficient to simply follow the statistics of artificial intelligence: a circle of wise men (experts) must examine these cases piece by piece, in order to make a weighted and supported decision.

Such a shock resistance score has more possibilities than during a major crisis. Even if a mayor has plans to redevelop a town square, the shops must be able to survive. However, they then have to go into a kind of ‘lockdown’ and lose sales. If the works take too long, they can go under. On the basis of a shock resistance score, the Mayor can document himself in advance and plan to prioritize the financial support from the start. And he can determine the budgets to guide those stores through the difficult period.

There are also ethical issues associated with this: if an organization’s shock resistance score is poor, suppliers may be able to cautiously refuse to deliver unless payment is made immediately.

But the knife cuts both ways: the government can also demand that the legal reserves be expanded by the organizations, just to increase their shock resistance score. Currently, this should be 10% of the capital. Failure to check this leads to non-compliance, which de facto weakens the competitive position of the organizations and therefore of the region.

After a crisis in which large government support was used, a recession can follow. Unbridled giving money cannot last. So choices have to be made. Balance must be sought, with social and societal justice. A crisis exposes anomalies. This raises questions

  • What do we want to do with our society?
  • Are we aiming for unbridled entrepreneurship with freedom – happiness?
  • Or entrepreneurship with sustainability, attention to the environment and society?
  • What do we support ?
  • Do we continue to aim to create more and more jobs by organisations, or do we look at sustainable, fulfilling work with future prospects?
  • Do we want companies with strong shock resistance?
  • What about companies with holdings abroad? Are we going to continue to make those holdings richer?
  • Is it time for a conversation with the private about how to do this? How do we have that conversation?

So questions are about

  • Hallmarks of undertakings
  • The impact on companies
  • What direction we want to go in as a society.
  • What do we do with companies that are on the verge of bankruptcy before the crisis?
  • What about start-ups in turbulent water?
  • What about shock-resistant companies that were little affected by the crisis? What about their mortgage? Their investments?

The government must make the right social choices. To this end, data mining is super important. Belgium is more equipped in this respect than neighbouring countries. It can order studies to know the effect of the measures in great detail. This provides post-crisis a number of lessons learned that in post crisis can help prepare a next crisis with rescue plans. To this end, intangibles can also be measured indirectly. Research into intangibles is needed to stimulate innovation and detect crime during and after the crisis. By working together regionally with the federal (justice) department, you create the test ground to find out how best to dose the approach for companies.

This data mining can also be used to determine the effect and effectiveness of the support measures: which support measures have worked to what extent. Which companies receive which support during the reconstruction? Which ones don’t ?

In addition, the government must continue to activate dormant savings. This requires trust. For example, with funds whose units are insured against a decrease in the value of the fund. Inclusion is important.

Focus on SMEs that develop technology that promotes environmental well-being.

Extra credit via payment term of 90 days instead of  30. With a tax advantage slightly higher than the loss of profit. This provides continuity in the customer portfolio, goodwill, loyalty, retention for supporting entrepreneurs.

Encourage to put financial surpluses into loans to customers or suppliers. Or to take minority participations.

The government as a business angel? (Is that possible?)

Symbiosis with organizations from other sectors: vans that are now half empty…

A third dimension is therefore, in addition to quasi-bankruptcy pre-crisis or during the crisis, also whether the company was not only economically healthy, but also socially responsible companies. Whether they can become later.

Check, among other things, whether the customers are activated.

  • Where do you give the right financial injections?
  • Where do self-reinforcing chain reactions occur?
  • How do we achieve maximum effect?
  • How do we limit the Flemish dependencies that come to the surface during the crisis?

In this way, among other things, make the crisis a catharsis.

Benchmarks for (only) a first direction are those of the nine-grid of Graydon.  (https://graydon.be/nl/ITAA-YourInsight)

We learned that we depend on long logistics chains, that we are dependent and vulnerable, that our economic credo is not shock-proof, that decisiveness is lacking, that local trade was creative, that web technology is powerful, that social cohesion in many neighbourhoods has become stronger, that commuting has been questioned, that a new approach to the working environment was possible…

Furthermore, incentive of equality is necessary for effective better prosperity. Otherwise, the rich will become richer, the poor poorer, with all the consequences for social robustness. To this end, the dissemination of knowledge is necessary. That doesn’t happen spontaneously. This makes one stronger. Organize learning how to make connections and associations, avoid specializing too quickly. E.g. through a course ‘overarching consideration’. Show common ground between sciences, between abstract thinking and everyday experience. Teach them to reflect on the environment, on themselves, on their future. (Jacques Attali: ‘Peut-on prévoir l’avenir?’ 2015)

In addition, a self-confident region in a self-confident Europe is needed to stand stronger. To this end, the growth capabilities must stimulate people to know and acknowledge their own values. Belief in one’s own abilities, interest in the other…

For this, four tools are needed: social structure or governance format, communication, technology and economics.

In terms of leadership in the crisis, it is necessary post-crisis to rethink the structures and their power:

  • What was helpful?
  • What was pointless?
  • What was bothersome?

In terms of institutions, one must therefore check which ones can be renewed, which ones have to grow, which ones have to shrink and which ones are allowed to leave.

In order to organize society, economy and technology for the people of tomorrow, we must therefore prevent or counteract the far-reaching brain drain from our region (Flanders).

In addition, our region must support its social cohesion. Tackling ‘the others are wrong’ thinking, tackling human (social) poverty (not the lack of prosperity alone). To this end, it must stimulate binding action and communication. That starts with connection in neighborhoods. The aim that everyone is involved and takes responsibility. Ask how to engage people from other communities. Decision-making at subsidiary level based on interests. That creates

  • Chances
  • Social cohesion
  • Hope
  • Creativity
  • Integrates cultures

This can only occur in the long term, thanks to a long but sustained lead time. The state should not be a dogma. The state must create opportunities that correct unevenness of opportunity.

In terms of economy, re-shoring is needed. It is equivalent to securing our supply, control over the flow of goods and services. About its quality. Shorter transport links. It is more efficient and cheaper in the long run. Consequences can be: better air quality, decongestion of our roads and more circularity.

Then there is the issue of the failing entrepreneur. It must be able to restart; instead of seeing him or her as a kind of criminal, see him or her as someone who can learn from his or her experience. Or accompany him or her to paid employment.

With technology you can do a lot in terms of artificial intelligence. However, it is also dangerous relative to GDPR and human rights.

All this is to be resilient. This is necessary for the organizations and our region to be able to meet the others in full confidence and respect.

The climate problem is a continuity problem. How do you go about that?

Author: Manu Steens

In this article I write my own opinion, not that of any organization.

In the month of July I mainly read in the book “Drawdown – The Most Comprehensive Plan Ever Proposed to Reverse Global Warming – edited by Paul Hawken”.

This book contains 100 interesting reports of climate-saving measures. In addition, there are innovative ideas in it. One of them caught my attention more than the other, because it seemed so miraculous to me: ‘artificial leaves’. It says that on June 3, 2016, Nocera and Pamela Silver announced that they had succeeded in making high-energy fuel by combining solar energy, water and CO2. By using two catalysts, they have obtained free hydrogen gas from water. By feeding this to the bacterium Ralstonia Eutropha, it turned it into liquid fuel. If the bacteria were fed pure CO2, the process is at times as efficient as photosynthesis. If they extract the CO2 directly from the air, it is three to four times more efficient as photosynthesis.

A few pages later it was about the technical capture of CO2 from the air. (This is called DAC or direct air capture.)

You can already see my idea, the idea of DAC that Bill Gates also proclaimed in his book is useful to feed this ‘trapped’ CO2 in a higher concentration than in the air to this bacterium. If you realize that on a large scale, you organize a potentially closed cycle for the creation of pure air on the one hand and fuels on the other. For the time being, there are economic obstacles. These may be surmountable in the long term. Time that we may not have, so it will be useful should governments intervene.

However, that is not the only issue I would like to refer to. We are already in the process of further heating an overheated planet. It will prove to be an insufficient effort if we try to save the planet by only creating a sustainable cycle in fuel consumption. After all, we are in the midst of the transitional phenomena of rising greenhouse gases. Halting the increase in CO2 does not guarantee a stop to the evolution of the climate. At most, it will slightly adjust the evolution. A CO2 reduction in the atmosphere must be done – quickly.

Fortunately, there are plenty of possibilities described in the book. That’s a plus. However, to call this book a ‘plan’ as the title does is an exaggeration.

We have a number of things: for each solution (except for the innovations that can still be proven and developed), we already have at a deadline of 2020-2050:

  • The potential number of Gigatons of CO2 reduction
  • The net costs (financial investments to be made)
  • The net savings

For a plan we need some extra things. We have some additional questions:

  • Where on earth is each of the proposed solutions most efficient and where is it most effective?  With what deadlines for which carbon storage method?
  • How do we convince local politicians to make the budgets sufficiently free?
  • How and where can some solutions be combined?
  • How do we shape humanity’s behavior into the right behavior in their own environment?
  • How do we convince local politicians to make measures enforceable?
  • How do we convince local governments and the private sectors that there is a lot more money to be made from creating a livable planet than from continuing to parasitize on it? ‘Drawdown’ already gives a start with numbers.

Conclusion:

So the issue I have is that governments  have to work together at an international level. That they write studies to create a globally supported plan and then implement the same plan worldwide. CO2 neutrality is not sufficient. CO2 reduction is needed. If there is no plan with deadlines and control over their implementation, the book ‘Drawdown’ will remain what it is today: a result of a well-thought-out research on a number of small and large noble initiatives that are being disseminated and have potential. It would certainly be a pity if the opportunities to secure the continuity of the planet and earn serious money from it are not taken. That will require sacrifices. Especially from people with a large CO2 footprint. There is a danger that individualism will prove to be the biggest obstacle. Individuals are not going to solve the problem. However, it is the first priority.  Pressure from below will be needed.

Why can camaraderie be a pitfall in crisis management? Is collegiality an answer?

Author: Manu Steens

In this article I give my personal opinion, not that of any organization.

This article is inspired by “Chapter 10 – Fairness, Diversity, Groupthink and Peer Effects: Why Other People Are Important to Our Risky Decisions” from the book ‘The Ten Commandments of Risk Leadership – A Behavioral Guide on Strategic Risk Management’ by Annette Hofmann.  She gives the following law of risk leadership:

“Teams with great diversity with defined rules for communication and collaboration make better decisions.”

Research shows that teams need collaborative assignments/tasks, known rewards, and defined objectives to have a psychological sense of security and to promote productivity. Conflict can be good. If we aim for a good decision-making process, a diverse team with specific communication and cooperation rules is needed.

How does this relate to pure camaraderie? The first question is: what do we understand by camaraderie?

At https://www.vertalen.nu/betekenis/en/camaraderie , the term is defined as:

  • camaraderie among colleagues
  • “the quality of affording easy familiarity and sociability”

In my ideal image of a group of comrades, everyone is equal.  It is seen that when they  want to organize something among comrades, they looks at the natural leader.  And therein lies a hidden dangerous factor in the behavior, namely groupthink.

The original description of groupthink is by Janis (1991):

‘A mode of thinking that people engage in when they are deeply involved in a cohesive in-group, when members’ strivings for unanimity override their motivation to realistically appraise alternative courses of action.’

 It occurs when certain antecedent conditions (symptoms of groupthink) and a defective decision-making process are present.

The most important antecedent condition is a ‘cohesive group’. A similar other is isolation of the group. In both cases additional opinions and advice from third parties cannot end up in the group where they need to be. And are therefore not considered.

In addition, the attitude of the group leader is important. Especially when he selectively favors people in their opinion (often his own). Or when the group is homogeneously composed of like-minded people.

A third antecedent condition refers to provocative situational contexts. For example, in case of extreme time pressure, one chooses the leader’s solution, because one sees no other way out or considers nothing else as realistically feasible.

In addition, members with low self-esteem like to seek confirmation within a group and are averse to contradicting others (with group consensus).

Complex and moral conflicts can also affect an individual.

Symptoms of striving for unanimity are:

  • Illusion of being invulnerable.
  • An inflated level of optimism.
  • Increased willingness to take risks.
  • Blindness to warning signs and impending failure.
  • The belief that you are unstoppable.
  • The conviction of moral superiority.
  • Stereotyping of other groups.
  • The conviction of superior intelligence.
  • Considering negotiation with other groups futile because the other group is seen as incompetent and weak.
  • Underestimating the opponents.
  • Collective rationalization of one’s own great right.
  • Direct pressure on dissenters in the group.
  • The oppressive person presents himself as a sentiment guard.

Lesson learned from this could be that a strong cohesion of the group is one of the most important contributions to groupthink.

Groupthink needs strong feelings of solidarity and the individual desire of the group members to have good relationships with each other. This is often seen in comrades in a cohesive group.

The correlation between groupcohesion and groupthink is rather weak. But there is one. ‘Debiasing’ strategies are therefore needed.

A group with a strong leader is vulnerable to groupthink. Or if one is unsure of having a dissenting opinion.

  • Self-leadership is important for risk leadership to build self-confidence. For this, the interpersonal sense of safety is important.
  • Against homogeneity of the group and groupthink, third parties can be involved in the story. Often these are consultants.
  • Letting the group leader express his opinion last is useful to let others express their opinion for themselves. This is important for the impartiality of the leader. Otherwise, there is a danger that in the group
    • less information is used;
    • the leader exerts too much influence;
    • fewer proposals for solutions come on the table
  • In addition to personal safety, constructive conflict is beneficial. This is because differences in team members’ opinions, ideas, values, and ways of thinking are important to learn to work together optimally. This is best done with a high degree of interpersonal safety.

Conclusions:

Leadership is a double-edged sword because:

  • leadership can prevent groupthink by being aware of the antecedent conditions, the symptoms of groupthink, and symptoms of defective decision-making processes;
  • strong leadership can kick-start groupthink.

The camaraderie should not be ‘fictitious’: one must continue to dare to challenge the other. Otherwise, one is too easily impressed by the opinion of ‘peers’. After all, higher  social interaction also  increases this effect.

The culture in the crisis team is important. If in an organization one does not have the habit of expressing one’s own opinion in a crisismeeting, then this groupthink provokes a lower qualitative decision-making process, with higher chance of mistakes.  It can go so far that people expect you to keep your idea to yourself. With all the consequences for the quality of the decisions.

A well-known example of such groupthink was the disaster with the Challenger on January 28, 1986.

Another well-known example is the Chernobyl disaster on Saturday, April 26, 1986.

Consequently, it is best to work from a collegiality based on free expression. This may involve aspects of camaraderie, as a catalyst. Not as the main characteristic of mutual behavior.

What's in store for us?

Author: Manu Steens

In this article I am writing my own opinion, not that of any organization.

Recently there was a team building event for the organization I work for. On leaving the reception, a colleague asked if I knew about future crises that await us. Actually, the answer to that is: no. I don’t know that. Knowing about the future is pointless. After all, an Arabic proverb rightly says: “He who foretells the future is a liar. Even if he is right.” Doubting about a number of things, however, is another matter. And doubts can be well-founded. And it moves us forward to do this in a reasoned way.

So at that moment I spoke about what was on my mind. On issues for the future, based on uncertainties. These are:

  • Diseases
  • Famine
  • War

And separately: terror (recently there were statements by terrorist organizations to increase the number of attacks). Because while its urgency is enormous for the psychological effect it produces, its materiality is more limited than the other three.

  • Diseases can occur for various reasons. The climate can change in Western Europe in such a way that, for example, the tiger mosquito gets even more opportunities than it already has and, for example, brings Zika to us through the global supply chain. But diseases such as yellow fever and new variants of corona can also spread: through global tourism. Furthermore, migrants can also bring new, unknown variants of diseases that we naturally have, such as tuberculosis, to which our population has no resistance.
  • Famine was discussed much earlier by UN Secretary General Gutiérrez , who mentioned this issue. A possible cause for this is the drought, which in the long term could have a disastrous effect on the harvests in Western Europe. But also countries that close their borders for food exports, or can no longer export to our regions because of war such as the one in Ukraine. Whether a change of food source, such as switching to quinoa , will provide a solution remains to be seen. A change of diet, including more seaweed products, may be necessary, but the question is whether science and the food sector can react quickly enough to produce sufficient seaweed in a large number of varieties on a large scale. But the increased wealth in Eastern Europe can also play a role: will Polish and Hungarian drivers still want to drive in Western Europe to supply the supermarkets when they can earn the same amount by driving locally around their church tower in Eastern Europe? Even if the stocks in the countries in Western Europe were sufficient, the stores could not be supplied due to a problem of the supply chain.
  • War could be caused by water shortages in certain regions. These are so-called climate wars. But the war in Ukraine could also escalate. Or, with increasing political attention to problems close to home, terrorist conditions elsewhere could accelerate to such an extent that some countries think they must intervene militarily somewhere. And that in itself could cause terror in our regions. After all, there have already been statements from terrorist organizations that say that the war in Ukraine is an excellent situation to increase the number of terrorist attacks in the West. The question then is how efficiently the special forces of the police can continue to act under an increased workload due to a potentially increasing number of attacks.

These matters are uncertain, but they are already being discussed.

That means that through these uncertainties we have 23 = 8 possible futures. These are the possible combinations of famine or not, war or not, and disease or not.

If we limit ourselves to these three axes, we arrive at a 3-dimensional cube with 8 parts. By unraveling these, we come to the following conclusion:

  • In four of them there is war.
  • In four of them there is hunger.
  • In four of them there are diseases.
  • In one of them we have all three.
  • In one of them we have none of the three.
  • In three of them we have two out of three.
  • In three of them we only have one.

By raising these doubts, we are not pessimists, even if it seems so. It may allow us to look for possible indicators that tell us more about the direction(s) the world is heading in the short and medium term. We have to prepare for that. However, it is not getting any easier to determine good indicators in a fast-moving world, which are also timely enough to have predictive value.

Some questions we should ask ourselves are:

So what is the reasonable worst case for Business Continuity Management? What measures can we devise to be sufficiently resilient , without costing a fortune? Which measures cover several possible futures wholly or partly, so that strategic and especially in the global supply chain good decisions can be made?

How can we prepare and to what extent should we do that? When do they occur? How should we communicate about it? How do we break through the harmful law of psychology that states that what we are not used to is difficult to imagine, what we consider highly unlikely, and what we consider unlikely is considered to be negligible. What type of network leadership do we need? What is the role of who? Is it necessary to give everyone subsidiary decision-making rights? Or even decision-making obligations? How can we get people to develop sufficient trust in each other on such a scale? And how far does the geographical scope of the approach extend? Which partners do we want to involve, sectors, countries, continents…

But another question also arises: what is the chance that I have proximity bias in this reasoning because of the latest news reports? Or another kind of bias? According to recent studies in the UK, bias is said to be a pervasive problem. That thought also makes me insecure. There is work to be done. Perhaps for everyone.