Building enterprise resilience in a volatile business environment.
Atalaya is the Arabic word for a watchtower. The Atalayas were constructed by the Moors in Spain between the 9th and 11th centuries. But they were more than just watchtowers. At the time the Moors’ relations with the Christians to the north offered a complex mix of threats and opportunities. The Atalayas represented a physical network, enabing the Moors to communicate throughout their territories, developing networks of information and influence to understand and adapt to threats and opportunities. Like the watchtowers in Lord of the Rings, lighting fires on top was the fastest form of communication of the day, albeit with limited bandwidth.
British Chancellor George Osborne has begun the year warning of the external dangers for the British economy. The World Economic Forum vies with a broad range of think tanks and geopolitical consultancies to warn gloomily of the global risks in 2016. It is easy to see their point.
As US relative power and influence declines, tensions and conflicts spread around the world. From China to the Middle East, from Russia to North Africa economic and political instability threatens. And yet, despite the stark images in our news bulletins, global threats like climate change or pandemic disease may pose even greater long term dangers.
The rules governing international political and commercial relations are breaking down. Governments are no longer willing or able to enforce them. International organisations are stagnating. While capital remains global, trade is regionalised but policy-making remains national. Instead of being able to depend on a single global rule set, with international institutions to implement it, companies must learn to navigate between the rocks and eddies of a fragmenting international system.
The bottom line of a company abroad is vulnerable to a broad range of interconnected political, social, geopolitical and economic factors. Companies face a combination of old and new threats, from expropriation and reputation damage to cyberattack. Non-state actors, benign as well as malign, can hit a company’s profits. Non-governmental organisations (NGOs) can be as dangerous as hackers.
The trouble is that the world is not only dangerous; it is also volatile and unpredictable. It is important to understand the political and economic factors that shape the international business environment but this cannot translate into certain prediction. For all the efforts of organisations like the World Economic Forum (WEF), there will be key events in 2016 that no-one has predicted. This has always been true, but in the more dynamic and interconnected world of the 21st century, these geopolitical surprises will be more common, and have greater impact. In his bestselling book of the same name, Nassim Taleb describes these unexpected and unpredictable shocks, as Black Swans. In a now famous press conference, then US Defense Secretary Donald Rumsfeld preferred to talk about “unknown unknowns”.
“No operation extends with any certainty beyond the first encounter with the main body of the enemy.”
Helmuth Von Moltke
Or put simply, no plan survives first contact with the enemy.
In a world where prediction is a mug’s game, decision-making must be flexible and agile. The key becomes developing the enterprise resilience that allows companies to adapt rapidly to the changing political and economic environment. They must develop strategies capable of seizing opportunities and mitigating risks as they arise. Soldiers and diplomats know this well. They are used to operating in worlds of uncertainty and incomplete information. In the 19th Century, the Prussian Field Marshall Von Moltke argued that no plan survives first contact with the enemy (US boxer Mike Tyson put it a little more pithily when he said “Everyone has a plan till they get punched in the mouth”). Von Moltke argued that strategies are a series of improvisations. In the volatile and unpredictable international business environment of the 21st century, companies too must learn to take decisions under conditions of uncertainty and imperfect knowledge. The rigid strategic plans of the business schools no longer cut it.
Businesses must develop resilience to survive and thrive in a volatile and dynamic world. They can no longer rely on governments to do it for them. But they can learn from the techniques and mindset of the government diplomat. The core of resilience lies in developing networks of influence and information. Companies must cultivate the key government and non-government stakeholders who shape how political, economic and social factors impact on their business. These networks allow them to put together flexible coalitions to seize the opportunities and mitigate the threats the world will throw at them. In the 21st century, every business executive must be a diplomat.
The network of Atalayas sought to give the Moors the resilience to seize the opportunities and mitigate the threats of their relations with the Christians. In the end the network proved too rigid for its time. The resilience of companies in a complex and challenging international business environment will also depend on the networks they will construct. But their networks will be among their stakeholders, in the widest sense. Identifying the key stakeholders will be crucial. Their networks will connect a broad range of different kinds and levels of actors. That will mean understanding them and their aspirations. Empathy will join resilience as buzzwords of international risk management. Companies must use the new social media and information technology to ensure the flexibility the Moors failed to achieve.
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