Dave Pollard's papers on business innovation & knowledge management

	May 2, 2008

Knowledge Management in 2020 It's 2020. Trying times for the global economy and society, but we're still hanging in there. Madison S. is an information professional with Omni Consultants, a big global consultancy that is now focused (as are its competitors) on personal productivity improvement, facilitation, cultural anthropology, and design and communication skills development services for their clients. She has an MIS degree and is one of the highest paid of Omni's employees, even though she provides few services directly to Omni's clients. She spends about 1/4 of her time producing business analyses based on environmental scans for Omni's consultants. These analyses sort through the firehose of information coming into the organization and distill out 'What It Means' summaries -- five-page point-form reports suggesting important trends, alarming developments, new opportunities, insights and implications for business, the economy and the society as a whole, rich in visualizations, with supporting data appended. These serve as powerful Talking Points Memos for Omni's consultants to use in conversations with and proposals to clients. Another 1/4 of Madison's time is spent producing 'What Might Come Next' analyses. These are a combination of forecasts about the future of businesses and industries, based on her team's research, and provocative proposals for action to capitalize on or mitigate these forecast events. These analyses are framed as future state stories, scenarios, showing how the suggested actions would lead to optimal outcomes. Omni's consultants 'tell' these stories to their clients' executives and project teams to help them visualize their future and develop and refine strategies to exploit or adapt to the changes forecast. Omni's senior management, likewise, uses these scenario-based analyses in its own, internal strategy and risk management development. This activity represents a dramatic change from the activities 'information professionals' had performed in the past. Omni's managers came to realize that research is best done by experts in research, not by everyone in the organization, and that good IPs are able to add enormous value to the information they locate and distil, if given the opportunity, provided they are knowledgeable about the business and how it uses information. Another 1/4 of Madison's time is spent supporting collaboration and innovation teams in real time consulting assignments with Omni's clients, and in real time internal project work. Her role in such projects is two-fold: To provide insightful synopses of relevant information prior to the start of the collaboration and innovation sessions, and to retrieve relevant information immediately that has been identified as essential to moving forward by the collaboration and innovation teams. The rest of her time is spent in face-to-face 'cultural anthropology' sessions with Omni's people, during which she observes them doing their jobs, identifies and suggests ways in which they could use information and technology to do these jobs better, and brings back to senior management reports on systemic 'information problems' that need organization-wide process changes or new technologies before they can be resolved. Andrew R. is one of Omni's consultants. Like most of his peers, he maintains a weblog of what he has learned and discovered, which many people inside and outside the company subscribe to. He also participates in community weblogs for six self-established, self-managed 'communities of passion' he belongs to. His 'home page' consists of: a directory of all the people in his networks (showing their current online status, and real-time multimedia virtual presence contact information for them), a list of the RSS feeds to which he subscribes (mostly blogs of other community members, plus the publications of Madison's team), and his calendar. He can access this 'home page' from any computer or portable device. He has no e-mail or voice-mail and does not use 'groupware' or other asynchronous technologies. He can almost always be reached by Instant Messaging, and his calendar of times when he is available for conversations and meetings is open for anyone to book. As such, most of his day is spent in physical or virtual real-time conversations and other collaborative activities focused on some specific objective. The hard drive of Andrew's computer is virtually empty -- when he needs information, he gets it 'just in time' from the people in his networks via IM, by searching his RSS feeds, or by request from someone in Madison's group. Mostly, his networks feed him just the information he needs each day, so he rarely needs to ask. Andrew earns his money substantially by observing and listening to clients and telling stories that are relevant to their needs, drawing on his experience with other clients, his imagination, and the information from Madison's group. He also earns money by facilitating his clients and networks to co-design and co-innovate solutions to their own problems collaboratively by sharing ideas, knowledge and insights, peer-to-peer, using Open Space and similar complex-problem methodologies . Omni has no formal 'website' -- just its collection of blogs and its interactive directory of people with their contact information. Since they started these and abandoned the traditional website, readership of their pages, and follow-up work, have soared. Their big KM project for this year is Reinventing the Water Cooler, designed to find a way to replicate the opportunity for serendipitous, unscheduled conversation that the old water coolers once enabled. This is all well and good for businesses like Omni that have the resources to distill and analyze information. For smaller organizations and individual citizens it's a tougher challenge. Kim L. is a partner in a small entrepreneurial venture called MacClothes, that produces portable sewing and embroidering machines that can be operated by the (now-ubiquitous) Macintosh 20/20 computers to allow users to create their own custom made-to-measure clothing. Until recently they did their own business research, or did without. But recently they've struck a deal to 'subscribe' by RSS to some of Omni's research for a very low price, after a 90-day embargo period. Individuals in 2020 generally use RSS subscription to craft their own personalized real-time 'newspaper' consisting of feeds from any of thousands of specialized and community-based e-newsletters and millions of blogs, plus filtered 'Best Of Blogs' feeds ("BOBLs") on any of 7000 subjects maintained by information professionals as hobbies. The most successful of these BOBLs have millions of subscribers, including corporate subscribers who underwrite some of the maintenance costs. These 'premier' BOBLs maintain linkable archives of related stories to each story they feature, plus a 'What It Means' analysis and a 'Possible Actions' list that tells readers what they could/should do to act on the information in the story. Some BOBLs have become so popular that they have full-time paid specialist researchers and reporters on staff producing their own articles. The main complaint from businesspeople and the public about information in 2020? This hasn't changed since 2008 -- it's still information overload. But at least in 2020 the value of information intermediaries has been rediscovered -- people who are skilled at (and have time to) 'make sense' of the raw information coming at us in unmanageable amounts. And as a result a little more attention is paid to the meaning, implications and possible actions that stem from all this information. And, since all this information is viewable on highly legible, portable display devices, no more trees need to be killed to disseminate and use it. (Thanks to my KM colleagues Down Under for inspiring this post, especially Shawn Callahan, one of the brightest and most insightful people I've ever had the pleasure to meet.) Category: Knowledge Management 12:52:49 AM  trackback []  comment []

	April 10, 2008

What Works and What Doesn't Geoff Brown's 'Nancy White style' Map of Our Conversation with Viv McWaters (Posted from Melbourne) This will be the first of a series of posts distilling ideas from a series of conversations, meetings and conferences I'm involved in during my current visit to Australia. I have been meeting with thought leaders in the areas of facilitation, Open Space, improv, knowledge management, education, cultural anthropology, conversation, sustainability, stories/narrative, social networking, communities of passion, complexity theory and collaboration. I have met Viv McWaters (and Pete), Geoff Brown, Laurie Webb, Shawn Callahan, Michael Sampson, and Michael Nugent (and Trish), and a variety of participants in some of their remarkable projects. Although they have different areas of expertise and experience, the same questions (issues we're all grappling with) keep emerging in our discussions: What works and what doesn't i.e. what are the enablers and preconditions for success in bringing about organizational change: changes in environmental sustainability, social responsibility, innovation, adaptation, process changes, new technology introduction, personal effectiveness improvement etc.? What is (for each of us) the Big Question -- the issue, doubt, problem or struggle that keeps us awake at night because we know we are still a long way from resolving it, and without doing so we cannot achieve our life's purpose? What are the commonalities, patterns and collective approaches to dealing with these Big Questions? How can bottom-up successes be scaled and/or replicated?  What are the preconditions for effective collaboration? What will tomorrow's knowledge management (or whatever we call them) systems look like? What kinds of stories have the most power? How can we become better story-tellers? How can we make space and time for serendipitous conversations, the kind that produce astonishing insights, connections, and idea transfer? How can we make better use of our time, and get more accomplished? How does one design effective learning systems when we all learn differently? How can we make better use of metaphors in creating and finding meaning? (Elizabeth Gilbert in Eat Pray Love says: "I believe that all the world's [religious, political and philosophical movements] share, at their core, a desire to find a transporting metaphor. When you want to attain [some major change in understanding or belief or appreciation of some startling new concept] you need some kind of magnificent idea to convey you there. It has to be a big one, this metaphor -- really big and magic and powerful, because it needs to carry you across a mighty distance.") How can we become better conversationalists? And improvisationalists? How can we be sane and happy and productive in an insane and misery-filled and dysfunctional world (letting go, finding peace, presencing and all that)? What interests me most about the questions above, the questions we've been discussing so passionately all week, is that the 'answers' (to the extent we have brainstormed or agreed on them) are probably not as important as achieving consensus that these are the important questions we need to address in order to make this world a better place to live and make a living in. So while I plan to write about some of these issues in the coming days and weeks, I will also be refining and reposting this list of questions. In answer to the first question (what works and what doesn't in change programs), John Kotter has said there are eight preconditions to 'leading change' in organizations. The first and most important are (a) shared sense of urgency and (b) a guiding coalition. My experience has been that real change in organizations rarely occurs by executive fiat. When ordered to do something new, people who aren't 'sold' on the idea will tend to comply only to the extent and for as long as they absolutely have to. By contrast, those who are sold on the idea, who are passionate about it, will sustain the change. Likewise, having a guiding coalition of people championing and stewarding a change through will help to achieve immediate compliance, but not necessarily enduring change. Like it or not, people tend to do, in the long run, what they think makes sense, to the extent they are able to do so, rather than what they are told to do. This streak of self-management is inherent in human nature, I think, and generally a good thing, except perhaps in armies, and even then I'm not too sure. So in our discussions to date about what works and what doesn't, the list of 'what works' is looking something like this: What the people who have to implement it and sustain it have passion for (e.g. meets a need) What is simple, easy, inexpensive and intuitive to do What people can see works well (e.g. because it's worked somewhere else) What is fun to do (play, learning) What, when done, has tangible, visible results ("we did that!") What the people involved believe they have the collective capacity to do well  What the people involved are ready to do (energy, time, resources, worldview) When the people involved like and trust each other And the list of what doesn't work is looking something like this: What doesn't make sense to those who have to implement and sustain it (e.g. the war in Iraq) What is conveyed with conflicting messages or conflicting sets of priorities What you need to bribe or coerce people to do (in other words, the old argument that 'what gets rewarded gets done' no longer applies) Do you know of any examples of astonishing, sustained change? What made it possible? How were the obstacles circumvented or overcome? (PS: A possible 13th question, after hearing her name from four different people here in Australia already: Is there anyone in the world Nancy White doesn't know and hasn't worked with?) Category: Collaboration 11:46:46 AM  trackback []  comment []

	March 24, 2008

The Secret Pulse of Time Image: Dali's Persistence of Memory Stefan Klein's book The Secret Pulse of Time is a fascinating, scientific explanation of how we 'make sense' of life's scarcest commodity. Alas, while it is long on exposition, it is short on resolution. Readers hoping for the 'how tos' promised on the book jacket will likely be disappointed. But it may start a conversation that other writers can build on that could actually help us learn to live in Now Time, like most of the other creatures on our planet that are not confounded by large brains. The first part of the book explains our biological clock, which actually runs on a 'day' that varies from 24 hours and 5 minutes (for 'morning people') to 24 hours and 30 minutes (for 'night owls'), and which is 'reset' by the first bright sunlight of each day and again at the last sunlight at night. Our indoor lives, and window coverings, can deprive us of these 'resets', so night owls (and those prone to depression) are advised to expose themselves early and often to direct, bright sunlight. Klein then goes on to explain that our sense of never having enough time stems from three factors that originate in our own minds (and they are especially prominent in those with ADD/ADHD, he asserts): an inability to concentrate an overwhelming feeling of stress a lack of motivation The inability to concentrate, he says, is exacerbated in modern humans by the number of distractions we face. When our attention is caught, three things happen: a heightened sense of alertness, a focus on one thing to the exclusion of others, and a concentration of mental energy on the thing we're focused on.  This 3-part instinctive reaction to stimulus is addictive; we like the feeling. The more stimuli that are available, the more we end up distracted from giving sufficient attention on anything to be productive. The process of learning to concentrate therefore requires us to practice giving our attention to one thing, and avoiding distraction. Klein suggests (as I did in this article) breaking large tasks into pieces that can be done in one sitting. He suggests exercises that strengthen memory and focus (crosswords, meditation). And, interestingly, he suggests a simple technique for restless minds: When an idea occurs to you that is off-topic of what you are concentrating on, write it down, quickly, set it aside, and focus back on the matter at hand. The overwhelming feeling of stress, he says, is often viewed as the result of a perceived 'shortage of time', when it is actually the other way around. This stress-caused time 'shortage' is often a function of one or more of three things: a feeling of lack of control over how our time is spent (parents of children who consume a lot of our attention, often unexpectedly, and employees whose employers make unreasonable demands on their time are especially vulnerable to this), a strong sense of constant responsibility for others (women, care-givers, and people who take the weight of the world on their shoulders or bite off too much, are especially vulnerable to this), and  our perspective on the tasks we face (if it's perceived as work it's stressful; if it's perceived as fun it's not). But what can we do to change that lack of control, sense of responsibility or perspective of tedium? Not much, Klein admits. At least we can be aware of it. The lack of motivation, Klein says, is what can make a simple task take longer (due to procrastination) or seem to take longer (the 'watched kettle never boils' perception) than they actual should or do. If we have problems or chores at home, we may spend longer time at work doing what could be done more quickly, to put off the 'home work'. Modern life, by presenting us with a smorgasbord of things to do, can reduce our motivation to do any one of them. A consequence of this is what I have called Pollard's Law: We do what we must (what we're absolutely motivated to do), then we do what's easy and/or fun. We feel guilty for not getting to what is 'merely important' but that guilt isn't enough motivation to overcome the propensity to proscrastinate. Result: We 'never have time' to do it. One useful suggestion for increasing self-motivation: Visualize the positive consequences of doing, or having done, the unmotivating task. My favourite quite from the book (as someone who loathes 'self-help' books): Organizational psychologists who have studied so-called time management have established that it is useless, or at least not useful in saving time (three studies are cited). The final chapter of the book prescribes six steps for improving our 'sense' of time, but I found these mostly unhelpful: they are pretty obvious, and easier said than done: Negotiate with others (employers and others who make demands on our time) to get more control of it, so we can schedule our time more predictably and effectively. Know how your personal biological clock functions and live in harmony with it (it often changes over your lifetime) so you do work that requires mental energy, memory and/or concentration at the times of day when they are they peak. Set aside unscheduled blocks of leisure time so your mind has the chance to recharge and unwind and so you can learn to enjoy doing things just for their own sake -- this will increase your mental energy and ability to concentrate at other times. Train yourself to be more attentive, observant and perceptive. Train yourself to concentrate better (e.g, breaking jobs into small manageable tasks, avoiding and ignoring distractions). Set priorities and (as I suggested in this article) learn to say 'no' to urgent, unimportant tasks -- ask yourself if it will really matter in the future if you don't do this task. Worthy objectives. Now we need a lot more exercises and practices (that have been shown to work) to actually accomplish them. And some first-person stories of how people who never used to have enough time for anything, now have all the time they need. Category: Personal Productivity Improvement and Getting Things Done 9:44:15 PM  trackback []  comment []

	March 17, 2008

Is Our Business/Economic System Like a Biological System? Chart of group satisfaction by size, from Life With Alacrity Elisabet Sahtouris wrote an article in 2005 called The Biology of Business, which began with a dubious recapitulation of Darwin's model and explanation of evolution, and then attempted to apply this model to business 'ecosystems'. Like many others who adhere to the myth of 'progress', she describes the first half of evolution of all-life-on-Earth as competitive and the second half (with us as the crown of creation) as cooperative. Stephen Jay Gould effectively demolished this romantic myth in his book Full House, and I won't revisit that argument here, except to say that we are evidently not the crown on creation (merely one incidental and not particularly special node on an evolutionary tableau that has no 'higher' or 'progressive' levels), and that the 'purpose' of evolution is diversity, resilience (best served through complexity), and punctuated equilibrium -- not knowledge, self-knowledge or 'progress'. I know many people find Gould's scientific explanation cold and deflating, but, not being of spiritual bent, I find it refreshing, humbling and completely intuitive. At any rate, she goes on in her article to lament the dysfunction of our current economic system, which she blames largely on its inability to stick to the evolutionary principles of biological systems which were, presumably, its initial inspiration as a 'social' system. These principles are: Self-creation (autopoiesis) Complexity (diversity of parts) Embeddedness in larger holons and dependence on them (holarchy) Self-reflexivity (autognosis—self-knowledge) Self-regulation/maintenance (autonomics) Response ability—to internal and external stress or other change Input/output exchange of matter/energy/information with other holons Transformation of matter/energy/information Empowerment/employment of all component parts Communications among all parts Coordination of parts and functions Balance of Interests negotiated among parts, whole, and embedding holarchy Reciprocity of parts in mutual contribution and assistance Conservation of what works well Creative change of what does not work well For those not familiar with the jargon, holons are 'layers' of life, from cell to organ to body to community to Gaia, the community of all-life-on-Earth. These are, in effect, principles of collective self-management. Elisabet goes on to lament that principles 9, 10, 12 and 13 in particular are currently not applied in much of our economic system, and describes a rather naive 'eightfold path to excellence' written by Tachi Kiuchi to correct these 'flaws' in the system. The question is, is our economic system, currently or possibly, a collectively self-managing system? I think it is neither, for a simple reason: No species is capable of 'creating' collectively self-managing systems, or in fact any kind of complex system. By their nature complex systems are not fully knowable, and so they cannot be invented. They evolve by the collective cooperation and effort of all their constituent parts. By contrast, economic systems consider most of their constituent parts as 'resources', externalities to be used for the benefit of a small and hierarchical group of preferred interests. They are dumbed-down, merely complicated systems, not complex systems at all. While they may aspire to imitate some of the principles of complex systems described above, they cannot possibly hope to embody any of them, any more than a robot can be designed to fully emulate the operating principles of a body, or a computer the operating principles of a brain. Constructed artifacts are merely that, and they are merely complicated. The principles by which they operate are limited by their construction, and vastly different from those of a complex system. So what can we do to make our economic system more response-able, more like a true collectively self-managing, evolving system? The best we can do, I think, is to acknowledge its frailties, that stem from its fundamental complicatedness. Complex systems scale very well, and increasing complexity increases the resilience of these systems. Complicated systems, however, scale very poorly -- they need hierarchy, brutal and rough intervention, and bureaucracy to function as they get larger. When it comes to complicated systems, small is beautiful. Complicated systems are only self-manageable when there are very few components. That is why human social constructs seem to work better when the number of people involved is close to six, or fifty (see chart above). Rather than Tachi Kiuchi's naive 'eightfold path to excellence' our business and economic systems would be better advised to break themselves down into very small, local, community-based units of human-manageable size, let their members operate them as the high-maintenance human constructs they are, and stop pretending that they are, or can ever be, what they are not. I'm doubtful we can relearn the humility to do so, but I think there is no other workable way. Category: Complexity and Discovery 7:13:45 AM  trackback []  comment []

	March 11, 2008

Business Risk, Prediction Markets, Sustainability, Resilience, and the Wisdom of Crowds You can't make people care about what they don't. Sure, you can get people worked up about Darfur or Global Warming with some good photos or a stirring editorial, but soon enough it becomes abstract to them again. If you want to get people to care about something you have to frame it in personal terms, show them how it affects them personally. So when I talk to business people about Global Warming, I frame it in terms of business risk, business sustainability, and business resilience. These are things they care about. Some definitions: Business Risk: The possibility of the business suffering loss, harm or danger. It is the product of the probability (likelihood) of adverse events occurring, times the consequence (severity) of these events should they occur. Business Sustainability: The capacity of the business to remain in existence. Environmental Sustainability: The capacity to be continued indefinitely with minimal long term effect on the environment. Often shortened to just 'sustainability'. Business executives don't really care about this, but they do care about their business' sustainability. You have to show them that the two are connected, and how they are connected. Social (and Environmental) Responsibility: A duty of care to safeguard the well-being of people (employees, customers, community) and the environment. Business executives don't really care about this either, unless their indifference exposes them to business risk. Business Resilience: The capacity of the business to adapt to or recover quickly from adverse events. There is a well-established framework that positions risks in terms of likelihood (the probability of them occurring) and severity (the consequences if they occur). It's an imperfect model for several reasons: both the probability and consequences of most risks increase over time, so a chart that depicts short term and one that depicts long term risks will look very different the consequences often depend on who you are the consequences can be depicted different ways (dollar cost, loss of life, loss of quality of life) and these depictions can vary widely both likelihood and consequences are very subjective -- they're a matter of prediction, and humans are notoriously bad at predicting, and tend to underestimate the likelihood and consequences of adverse events Despite these imperfections, charts that depict risks in these terms do tend to attract the attention of business. Most recently the Davos group produced this chart of its '26 greatest global economic risks' (NPT= nuclear non-proliferation treaty; CII= critical information infrastructure): From Davos World Economic Forum Global Risks 2008 Report As interesting as this chart is, the problem is that its developers don't know much about what the risks really are. The likelihood of a pandemic, for example, as anyone knowledgeable about the topic will tell you, is more than 6% in the next decade. Likewise, to suggest the risk of significant global freshwater loss in the next decade is only 6% indicates a serious ignorance of ecology. There are of course other ways to parse risks and the adverse events or crises that produce them: by how suddenly they occur or their likelihood of recurrence by the nature of the crisis (social/economic, natural, technological) by whether it's caused by internal (to the business) or external occurrences The potential suddenness of a crisis affects preparedness and mitigation strategy. Risks that are due to internal causes (failure to adhere to regulations or social norms; internal sabotage) are generally more controllable than those due to external causes, and hence require different strategies that focus on prevention and not just adaptation. But generally, the variables that are most important to business are the two in the chart above -- likelihood and severity, in the short term (two years or less). Multiply the two together and the higher the result, the more attention business will pay to it. Risk strategies generally focus on five things: prevention (for those risks that are controllable), provided the cost is not uneconomic early detection (gathering, sensing and listening to credible information and early-warning signals) mitigation -- taking early steps to reduce severity response -- adaptation and recovery once the event has occurred learning -- revising the strategy after the event in order to be better prepared for recurrence While planning can help (especially when a key component of the plan is training and rehearsal), perhaps a more important aspect of risk preparedness strategy is improvisational capacity. Aid workers during the Katrina disaster, for example, relied on networks of skilled collaborators connected continuously by satellite phones, who would 'huddle' impromptu as unanticipated issues arose and assess the wisest course of action. The key elements of crisis mitigation and response are information-gathering, coordination and decision-making, and in a crisis none of these tends to go 'according to plan'. Businesses that are agile and improvisational are often better able to cope with crises than those with extensive, complex, rigid plans. Plans are based on assumptions, and when the assumptions prove false (e.g. the assumption by FEMA that, in the advent of a hurricane, backup systems would ensure electronic communications were functional) organizations that can't improvise add to the crisis instead of alleviating it. With these assessments so subjective, there is a danger that such charts simply lose all credibility, and business people cease giving them any attention. What could be done to increase the credibility of these assessments? If you've read The Wisdom of Crowds, or frequented any Prediction Markets, you probably know my answer: Instead of asking so-called experts, get the 'crowd' to make the call. Average out their predictions, and you're likely to have a much more accurate assessment of both the likelihood and severity of different types of risk than the 'experts' at Davos could hope to muster. To help them do that, you need first to decompose the risks. The simplistic scatter chart of the Davos gang overlooks the fact that many, perhaps most, of these risks are interrelated: The occurrence of one increases (or occasionally decreases) the likelihood of many of the others. When it comes to assessing the business risk from global warming, for example, businesses need to assess two short-term risks and at least five longer-term risks: regulation risk (risk of new carbon taxes and caps, and restrictions to supply and operations) reputation risk (risk of boycott for notorious emitters of global warming pollutants) risk of water shortages (related to glacial melt, evaporation and droughts) -- every business needs water and some use staggering amounts of it risk of energy shortages (as oil supplies are depleted and become vastly more expensive and restricted) risk of pandemics (as infections spread beyond their normal tropical habitat to areas with no natural resistance, affecting humans and they animals they eat) risk of pestilence (as insects likewise spread beyond tropical areas and attack trees and agricultural plants with no natural resistance, wiping out crops and making food, paper and wood unaffordable) risk of sea-level and sea-temperature rises (engulfing low-lying cities and growing areas, and affecting aquatic life) The global warming business risk can also be broken into: risks that arise because of actions the company takes, or neglects to take, that contribute to global warming or reduce impact on global warming (e.g. cost of reducing pollutants, and taxes paid on emissions) risks that arise because of the consequences of global warming on the company's operations (e.g. water shortages) So a chart of the major real risks to a business, at least in the longer term (20-50 years rather than ten) might look like this: The risks that are not considered to be significant short-term (less than two years) risks are in the upper right corner, and as long as business is only concerned with the short term, these risks are perceived to be lower-left corner risks, not worth being concerned about. Besides, most businesses perceive these as largely unpreventable and unmitigatable anyway, so their approach is to worry about them if and when they occur. Here's a brief summary of these 15 types of risk: Type of Risk Probability % Consequence $ 1.Major Fraud or Litigation Risk: A large-scale theft, governance or human error or litigation sufficient to threaten business continuity. (I/E) Low High 2. Major Transaction Failure Risk: Collapsed merger or acquisition or reorganization. (I) Low High 3. Major Security Failure Risk: A war, control breakdown, system failure or industrial sabotage severely disrupting business operations, solvency or continuity. (I/E) Low High 4. Reputation Risk: A scandal, massive boycott, product tampering, industrial accident or other event that destroys customer confidence e.g. major product quality, service or delivery problems. (I/E) Medium High 5. Regulatory Risk: Major new legislation that is prohibitively expensive to comply with. (E) Medium High 6. Major Supply Chain or Marketing Failure Risk: Loss of a major source of critical supply, embargo, or disastrous new product/market launch. (I/E) Medium Medium 7. Customer Credit Risk: An economic crisis severely hampering customers' liquidity, solvency or ability to buy, or pay for what they've bought. (E) Medium Medium 8. Natural Disaster or Terror Attack Risk: A localized major destruction of infrastructure and human habitat. (E) Medium Varies 9. Competitive, Market or Demographic Shift Risk: Innovation, new competitive threat or major shift in customer or employee market e.g. skill/talent shortage. (E) Medium Varies 10. Labour Disruption Risk: Strike, embargo, loss of access to employee market, or sudden change in cost or availability of workers. (I/E) Medium Low, these days 11. Minor Litigation or Regulatory Compliance Failure Risk: Small lawsuit or infraction of the law. (I) Medium Low 12. Global Currency, Debt or Trade Crisis Risk: An economic recession or capital market crisis brought on by currency collapse, or unsustainable national debts or trade imbalances. (E) Low/High* Low/High* 13. Energy Supply Risk: Major shortage of energy supply or spike in energy price. (E) Low/High* Low/High* 14. Global Warming Risks: Chronic water scarcity, flooding of ports by rising sea levels, pandemic disease outbreaks in people and animals, insect plagues destroying crops and forests, droughts, uncontrolled forest fires and other consequences of global warming. (E) Low/High* Low /High* 15. Interest Rate and Inflation Risk: Jump in interest and/or inflation rates sufficient to create a type 7 or 12 crisis. (E) Low/High* Low/High* * Low in the current perception of business; high according to economists and scientists. (I) = Internal cause risks. (E) = External cause risks. The above perceptions of risk probability and consequence will vary from business to business and are, of course, subjective. How might we use the Wisdom of Crowds, and Prediction Markets, to make them less so? To assess these business risks would require two different 'crowds': one familiar with national and global economic, social, technological, environmental and political conditions (for the risks that have causes external to the business), and a second familiar with the company itself (made up, say, of employees and customers, for the risks with causes internal to the company. We could set up global and regional Prediction Markets for each of the external-source risks, and then tie them into Wisdom of Crowds assessments of the business' employees and customers for the internal-source risks. By looking at the median and standard deviation assessments for both probability and consequence of each risk, we could place each risk on the chart above for each business, with a tight dark circle representing risks where there is great consensus and a large light circle or oval representing risks where there is considerable divergence of opinion. Both short-term and longer-term risk assessments could be plotted for each type of risk. Each of the stakeholders in the business -- management, employees, customers, investors, suppliers, community members etc. could then use this risk chart to make decisions in its own areas of interest. Customers might be more interested in reputation (#4), supply chain (#6) and innovation (#9) risk for example. Management could focus risk management decisions on upper right quadrant, short-term risks, while institutional investors could focus investment decisions on longer-term risks. The risk chart could then be the basis for a comprehensive risk management strategy for businesses, using a methodology something like this: Develop a process to continuously reassess the likelihood and potential severity of the risks facing the business. For each risk that is controllable by the business, identify cost-beneficial prevention actions. The costs of these programs should include the costs of over-regulating the business, bureaucracy, and stifling creativity and connectivity by restricting access to new technology. Develop a process to detect early-warning signals of these risks, and a mitigation program to put into effect when they are detected. For all risks, develop an adaptation and recovery plan. For major risks that could arise suddenly, use scenario planning to understand how the risk would likely unfold, train people to know what they should do, and do a 'table-top' and other exercises to simulate and practice coping with these risks and increase business resilience. After recovering from an adverse event, assess learnings and review and change the strategy as appropriate. This is the approach I'm taking when I talk with businesses about environmental sustainability and social and environmental responsibility. Tie environmental sustainability to risks to business sustainability, and social and environmental responsibility to risks to business reputation, business continuity and business resilience. I'm convinced that business cares about these risks, and is prepared to take steps to manage them, and that, by doing so, they will become more sustainable and responsible. The businesspeople I speak to want to do more, personally, to make the world a better place and to be better corporate citizens, but to justify doing so they need these actions to be couched in business risk, business sustainability and business resilience terms. I'm not saying that this is all that it will take. Our markets are distorted and far from perfect, and regulation is also needed that equitably forces businesses to reduce their adverse impact on the planet and on the social fabric of the communities in which they operate. What business managers tell me is that, provided the regulation is equitable, enforced evenly, and provides a level playing field for all players in their industry, they don't have any problem with regulation that will reduce their adverse social and environmental impact. In fact, quietly and off the record, they tell me they'd welcome it. This means that race-to-the-bottom 'free' trade agreements need to be replaced with fair, regulated trade agreements that put people and the environment ahead of profits. We can never achieve a level regulatory and competitive playing field as long as these laws (which irresponsible global corporatists strong-armed weak and gullible governments into signing) encourage offshoring, exploitation, pollution, waste, cost 'externalization' and the dumping of toxins in struggling nations. When the laws are equal, and the risks are equal, we just might find that business becomes more responsible and sustainable than we, its customers, are. Worth dreaming about, anyway. Category: Innovation and Society 8:37:12 PM  trackback []  comment []

© Copyright 2008 Dave Pollard. Last update: 02/05/2008; 12:57:09 AM.