I got a chance to read Margaret Heffernen’s book – Uncharted (UK edition) just before the Covid-19 pandemic in February 2020. The recents that followed have vindicated the thesis and it is no surprise that the book is now in contention for the FT best business book. There are several thought provoking lessons that businesses need to take seriously. In particular, the electric power industry, which is faced with unprecedented uncertainty, the most significant barrier for companies to stay relevant is to overcome its institutional inertia and embrace practices to “navigate” the uncertainty. Below is my synthesis of the main observations and recommendations.
Observations
1. Prediction models are failing: We live in a complex world, where there are different forces are at play and the uncertainties are way too many and unknown to be quantified. Models used for prediction of the future are overly simplistic based on historicals and past performance that will not be able to predict the future. Models are also driven by ideologies and self-serving agenda and self interests that dismiss possibilities that go against those beliefs. As such, models fails merely feed into the hunger for certainty by seducing with large volumes of data that scoff and dismiss possibilities that do not fit the estimates and predictions
2. Pursuit of efficiency is not helpful:Relentless pursuit of growth and efficiency as the dominating means of achieving growth has created an imbalance in actions that businesses take. This is causing harm by cultivating a culture that lacks imagination and creativity. It does not support emergence and acknowledgement of bold ideas. Businesses tend to sacrifice robustness because slack and buffer are considered wasteful and inefficient. So it is no surprise that when events unfold outside what was predicted, there is no resilience in the system to counter them, leaving the enterprise vulnerable. Such eventualities are not a failure of prediction, because uncertainty cannot be all predicted and deduced from a chain of cause and effects, but a gap in able to navigate the situations when they occur
3. Reliance on numbers is inadeqate: The use of numbers have been overstretched to explain the future possibilities, without an understanding of the uncertainty that cannot be quantified accurately. The economics discipline suffering from “Physics envy” has tried to deduce the future events based on past knowns. This behavior is pervasive in management and stifled imagination of possibilities that do not follow past trends. Understanding that uncertainty is inherent and past data can provide a elusive sense of discipline, it is no guarantee that the forces at play in the complex world will cover all the patterns and situations that can emerge.
The interesting aspect of the book is that while the observations appear daunting in the current environment in which businesses and companies operate, there are evidences that support this view. For instance, the valuation of Amazon and Tesla in recent months exemplify that when companies that have a cogent, credible, and coherent narrative about their businesses, even markets give lot of room when it comes to uncertainty. In other words, if we look into the numbers of these companies, it is hard to justify their valuation unless you believe their narrative.
Recommendations
The interesting aspect of the book is provides some tangible recommendations on how certain companies have been able to employ know tools, practices, and mindsets to navigate uncertainty. It may appear messy, disorganized, and even impractical, but doable. It is not easy by any means, but there are not many options but to embrace uncertainty and navigating through the “uncharted”. The three most important recommendations I picked up are:
1. Creativity and imagination:Uncertainty in this complex world cannot be avoided nor predicted with mathematical models relying on past and known data. There is currently a lack of creativity and imagination in considering possibilities that outside our current realm of what’s happened in the past. To overcome this gap, companies need to embrace the free-thinking spirit of artists who do not construct the future in the image of the past. Companies need to free up space and give room to those who can work with ambiguity and can take action on future worlds, an end that is without a causal connection to the past and the now.
2. Scenario Planning:As a tool scenario planning has been in the strategist’s arsenal for a few decades now. However, the use of it is largely limited due to a lack of divergent thinking in constructing the scenarios. There is hardly a separation of the simple from the complex, or consideration of the inherent paradoxes, such as a need for expensive solutions for those who cannot afford. These contradictions are endemic in a complex world, and most scenario planning is dismissive of these possibilities. They do not analyze extreme cases that are probable – hence, when a pandemic arrives, or a financial crash happens or even a disruptive technology enters the market – the companies are caught unprepared and exposed.
3. Experimentation: Experimentation allows participation across a wide range of possibilities that are not easily predicted. With limited investments, it allows estimates and discover outcomes by engaging with the forces that are at play. It allows companies to take actions and course correct. This process in itself builds the know-how and capabilities to navigate the unforeseen and unpredictable. The examples of CERN and how it approaches massive interdependent projects with high degree of uncertainty and with so many independent minded scientists, researchers, engineers, programmers, and mathematicians is case study. It is by no means easy. It takes large doses of humility in taking action without knowing the outcomes, and in constant observation and course correction. It takes immense stamina and fortitude to venture into the uncharted.
Over the last few years, many companies have shown vigor and energy in innovation around the breakthroughs in technology – AI/Machine learning, blockchain, and data analytics. Concepts such as, design thinking has also become fashionable. But in most cases, there is a hype that focuses on the ostentatious display and “theater” around these buzz words. The reality is most companies and their management are “frozen” in their thinking and imagination and anchored in their old ways in relying on predictive models that fall short. There is a complacency in cultivating bold ideas and divergent thinking and running organizations with a flexible mindset. Large industrials and utilities face these challenges and the rapid downfall of GE is stark example. The Covid-19 crisis has simply exposed how vulnerable this world is and the complexities need bold fresh ideas, many of which are covered in this book. This book could not have been more timely.
