Last night I watched the Kevin Spacey film Margin Call. It’s fiction but it’s easy to believe it’s not far from the reality inside some of the large investment banks during the 2008 crash.
Avoiding spoilers — you really ought to watch this film if you haven’t — the fictional firm in the film is forced to take drastic action after it underestimates the risk to some of its biggest assets — the very real mortgage-backed securities.
In my experience, the problem is rarely that people underestimate risk. It’s that they don’t estimate it at all. At least not for those issues that might cause them serious harm.
See no evil, hear no evil
Part of the problem is visibility. Some recent big business casualties just didn’t see what was coming at all. They didn’t recognise the threat presented by ecommerce, or digital media, or global competition, or new channels of customer communication.
Part of the problem is closed-mindedness. People become experts in their own business but forget that doesn’t make them experts in what is happening outside. They dismiss events in adjacent industries as being irrelevant to the special circumstances of their own.
Yet, all too often, the external challenges if unmet, are much greater than any internal strength.
Process over talent
This is not a personality fault of any individual. Visionary leaders who can keep one eye on the business and one on the breadth of external factors are extraordinarily rare.
But it is the fault of the leader if they fail to put in place processes to address this inherent weakness that most of us share.
Now, more than ever.
Because in an age of accelerated change these extinction level events come ever faster, driven by, or at the least, conducted by, technology. It doesn’t have to be an asteroid hitting earth to wipe out companies and even whole industries. Or its business equivalent, the 2008 crash. High frequency change means there are constant small shocks, each one great enough to collapse the unprepared.
Every organisation above a certain size should have a formalised process for scanning the near horizon and identifying threats. Every large organisation should be actively considering its fitness to react in the case that an extinction level event appears on the horizon.
Yet still, so few do.