These are not good times for control freaks. Business and political leaders are expected to control the organisational structures they are responsible for. Still, one only has to follow the media to understand how today uncertainty is ubiquitous in many aspects of our lives.
The academic literature is steadily flowing to help business leaders understand the nature of the uncertainty caused by COVID and how best to deal with it. We are still nowhere near finding the tools that can help us pass through this challenging phase.
The concept of dealing with uncertainty is not new to management studies. Most managers will acknowledge thatfor decades, they have lived in uncertain times. Continual upheavals, disruptions, global shifts like digitalisation, technology transformation, changing geopolitics, evolving business models, and changing views on the merits of globalisation are recurrent management challenges. But suddenly, we seem to be facing a new kind of disruption – discontinuous uncertainty.
A careful review of economic history in the last half century will show various examples of how specific business giants failed to understand how uncertainty could disrupt their business prospects.
IBM reigned supreme in the 1970s and 1980s when its mainframe computers were the unchallenged workhorses of the computer world. They failed to see the development of servers as a challenge to their market dominance. Luckily, they reinvented themselves and divested themselves of technologies reaching the end of their life cycle and invested in new and emerging ones like artificial intelligence.
Many, especially in the financial services industry, confuse the concept of risk with uncertainly. A critical difference between risk and uncertainty is that most risks can be anticipated and measured with varying degrees of probability. However, uncertainty is a subjective, multidimensional concept that varies, based on its source and the degree to which it is experienced. This is why uncertainty is difficult to measure.
Today, businesses need to confront uncertainty head-on and hardwire it in their decision-making processes
So far, there is no consensus definition in the academic world of what uncertainty is. Some academics argue that uncertainty is an accurate description of an organisation’s environment. Others maintain that uncertainty is a subjective perception of an individual manager or decision-maker about the uncertainty in the environment. If we accept this latter definition, we can safely say that uncertainty is ‘in the eye of the beholder’.
We often associate uncertainty with ambiguity, complexity, conflict, equivocality, risk and turbulence. One definition of uncertainty that helps understand its nature is a “perceived inability to predict something accurately resulting from a lack of confidence in one’s knowledge in a situation”.
There are different dimensions of uncertainty, including environmental, political, economic, government, cultural, industry, organisational and discontinuous uncertainty. The uncertainty created by COVID is unique because it impacts business, trade and social life in practically all countries. COVID will undoubtedly change how business leaders perceive uncertainty because there is no reference case for the COVID crisis in living memory.
Most seasoned business leaders have faced uncertainties in their careers. In the last few decades, we have experienced local epidemics like SARS and Ebola. Many still remember Black Monday and the 2008 financial crisis. We are also constantly aware of the impact of local regional and national disasters. Chernobyl, the 9/11 Twin Towers attack, Hurricane Katrina and the recent catastrophic flooding in parts of Germany.
Business leaders can act in two ways when faced with the kind of uncertainty that COVID has created. One response is to recognise its existence, depth and complexity but feel overwhelmed and become paralysed by it. This may be partly behind the chorus of appeals from business leaders for governments to pump taxpayers’ money to save them from extinction. Another response is brashness in the face of uncertainty, as though the problem does not really exist.
A black swan event is defined as “an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences”. For decades, organisations included such events in their strategic planning models. But few organisations ever envisaged having to deal with the kind of uncertainty created by a global pandemic.
Today, businesses need to confront uncertainty head-on and hardwire it in their decision-making processes. Business models and stress tests need to include scenarios that anticipate shifts in markets and input factors, changing consumer expectations and behaviour, disruption in supply chains, talent models and technology, and business model evolution.
Business schools will need to revise their curricula and emphasise the importance of human skills like courage, clarity and humility, and the lethal effect of weaknesses like overconfidence, procrastination and incomplete or biased interpretation of data.