Shaun Riordan │ The volatile and uncertain business world needs new forms of corporate management. This should be no surprise. In a Volatile, Uncertain, Complex and Ambiguous (VUCA) international environment, we also need new approaches to leadership and strategy training.
According to the theory of evolution, a species survives because in a given environment it proves best adapted to reproduce itself. When that environment changes, that species may no longer be the best adapted to the new conditions. Survival of the fittest is not for ever.
Something similar has happened in the world of corporate management. The attitudes and skill sets that thrived in during the long convergence (roughly 1991-2007) no longer guarantee success today. That period was marked by globalisation of production and sales and a relatively stable geopolitical environment. Successful corporate managers focused on the internal organisation of their companies and the financial results.
Business schools focused on ensuring that their students understood finances, corporate structures and marketing/branding. Teaching on strategy and leadership assumed stable external environments and focused on the internal needs of the organisation. Decision-making was based on perfect information and the assumption of rational actors.
This is no longer good enough. I have previously complained about corporate “strategic plans” which have nothing to do with strategy (and everything to do with Stalinist planning of the 1930s). The international business environment is highly unstable and highly volatile. In this kind of environment, strategy must revert to linking objectives to resources through the external environment. And be adaptive. As Robert Kagan has written, “The world has become normal again”.
Geopolitical and cyber risk now lie at the heart of corporate success and failure. Much of recent market panic has been driven by geopolitical factors: US-China trade war, Brexit, Hong Kong, Kashmir, political instability in EU countries. Even fears of recession are driven largely by geopolitical factors. Former FBI Director Robert Mueller said “There are two types of companies; those that have been hacked and those that will be hacked”. He should have added a third category: those that do not know they have been hacked.
But geopolitical and cyber risk are still dealt with as outliers in corporate management. Geopolitical risk management relies too much on poor quality geopolitical risk reports. Cybersecurity is left to technicians, whether in the IT Department or outsourced to Cybersecurity companies. But cybersecurity is not just a technical issue. Cyber weapons are wielded by humans with specific objectives and motivations. The greatest cyber vulnerabilities are human – poor passwords, phishing/spear phishing attacks, disgruntled employees.
Successful corporate leaders in the 21st century will need to relish instability. They will constantly need to take decisions under conditions of uncertainty and imperfect knowledge. They will need to incorporate geopolitical and cyber risk into the heart of corporate planning, as important as financial and economic risk. They will need to be strategic in the original sense of the word, taking account of the reactions of rivals and other stakeholders to their moves, and continually adapting their objectives to an ever changing environment.
In short, successful corporate leaders in the 21st century need to stop playing chess with themselves and start playing chess with a real opponent. Corporate management in a volatile geopolitical and cyber environment becomes constant crisis management, in the sense that corporate leaders are always managing change. This requires changes to leadership training.
People do not learn the strategic and management skills required by volatile risk environments through lectures and reading books. There are no textbooks on how to take decisions with incomplete information. These are skills that are learnt through practice. The military know this. Staff officers learn their skills through constant war games. But war games are limited in their scope. The new generation of corporate leaders need to hone their skills through diplomacy games – practising navigating hostile environments while avoiding conflict.
There are numerable examples of companies coming to grief because senior executives with the skill sets for the previous environment were unable to adapt to the new environment. Deepwater Horizon leaps to mind. Crisis management used to be a specialist skill, to be used only when things go wrong. Now it is management. Evolution is ruthless. If corporate leadership does not adapt, the corporations will become extinct.