Introduction - Themes (uncertainty)

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There is one common theme

"...we basically do not know what the world of tomorrow will really be like, except that it will be different, more complex, more fast-paced and more culturally diverse..."

Edgar Schein, 2004

In addition to the traditional dynamics of uncertainty, embodied by political, financial, social, etc, shifts, there is another, and newer, element of uncertainty. This element is the fact that the economy is increasingly the product of our skill, talent, creativity, knowledge and imagination which cannot be defined in the familiar ways. These aspects are

"...linked to another concept - reflexivity - the idea that the way we react to reality in turn alters the reality we are all reacting to.......Consumers' choices between services and goods on offer change the range of choices. Small, everyday decisions - what to watch on TV, what kind of savings account to open......- are swiftly analysed......for later programming decisions or for the design of new products..."

Diane Coyle, 1999

Every organisations is facing uncertainty, ie

"...today's world is a maelstrom of changing markets, technologies, customers, and products that are milling so fast that they cannot be ordered in a manager's mind..."

Geoffrey Colvin, 2006d

This can be well demonstrated by looking at the change in ratings of equity risks using the Standard and Poor's method which ranks from A+ for the least risky companies to D for the bankrupt ones.

"...in 1985 around 41% of companies earned the least risky rating, while 35% were in the high-risk grouping. By 2006 only 13% were highly rated and 73% were high-risk. That's what economists call a secular shift - a big, broad increase in uncertainty and volatility..."

Geoffrey Colvin, 2006d

Furthermore,

"...managing amid the chaos has become the central problem for companies of every kind. It is a predicament that arises from the very nature of today's economy. And the solution requires a retraining not of skills but of mindsets and assumptions. The biggest challenge has less to do with corporate strategy or management structure than with the nature of human beings and instinctive reactions to change..."

Geoffrey Colvin, 2006d

One of the biggest challenges is how to handle the unexpected/unknown/uncertainty. Nassim Taleb (2007) describes 2 types of randomness linked with uncertainty or an unexpected events, ie Mediocristan and Extremeistan; characteristics of each are

Mediocristan

Extremeistan

Classifiable

Unable to classify

Mildly random

Wildly random

Small to mediocre impact

Large impact

Many winners

Winner-takes-all

Small audience

Larger audience

Limited constraints

Unlimited constraints

Generally corresponds to physical qualities

Generally corresponds to numbers

Most likely found in current environment

Most likely found in a new environment

Equality

Inequality

Easily understandable

Difficult to understand

Tyranny of the collective

Tyranny of the accidental

Easy to predict as based on past performance

Generally unpredictable

Continuous improvement

Quantum leaps

Follows the bell distribution curve

Does not necessarily follow the bell distribution curve

(source: Nassim Taleb, 2007)

According to Nassim Taleb (2007), some reasons we fail to see the unexpected events are

- errors of confirmation (we focus on preselected observations and generalize from them to the unseen)

- narrative fallacy (we believe that stories will display regular patterns)

- human nature (we are programed to handle the expected rather than the unexpected)

- distortion of solid evidence (we see what we want to see, ie these mis-perceptions become our reality)

- tunnel vision (we focus on a narrow range of well-defined sources of uncertainty)

 

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