Embracing the Black Swan

Inhaltsverzeichnis

1. Frontmatter

2. Embedding Complexity Thinking in the Decision-making Process

   1. Frontmatter

   2. 1. Prologue

      Khalil Dindarian

      Abstract

      All unforeseen events can have unpredictable consequences for an organisation; such external forces make it volatile and render it subject to constant change due to its interconnectedness with the business environment in which it operates. Without preparation for such events, any help for that company after the event may be too late, and it is here that the limits of conventional silo risk management become clear. There are certain phenomena of which managers need to be aware and to understand to be able to avert such external forces and successfully lead the company out of the crisis.

   3. 2. Strategy

      Khalil Dindarian

      Abstract

      In this chapter, the various definitions of Strategy are considered in theoretical terms. In order to understand how effective emergent strategies are characterized by Resilience, the following are discussed:

      • Qualifying Enterprise Resilience as a Strategic Objective
      • Qualifying ERM as a Strategic Decision-making Property
      • The proposed relationships between, respectively, strategy and resilience, strategy and ERM, and Strategic management and strategy formulation

      It can be seen that strategic management is a framework for analyzing the environment, for integrating enterprise activities, for learning, and for adapting to change. It ensures business continuity, thus creating added value for shareholders and stakeholders, both in the present and into the future, even in times of complex environmental change.

      Resilience is, it can therefore be concluded, a strategic objective, since effective emergent strategies are characterized by Resilience, while ERM is a property of strategic thinking and decision-making.

   4. 3. Resilience

      Khalil Dindarian

      Abstract

      The purpose here is to better understand the characteristics of Enterprise Resilience and how it is concerned with emergence—a characteristic of Complexity (discussed in Chap. 4)—and the relationship between Resilience and Complexity is explored. Discussion includes the identification of the characteristics of a resilient organization and the application of the concept of a Complex Adaptive System for a holistic assessment of complex issues in order to address them. The assessment of Organizational Resilience and Risk Management can and should be aligned, to close the dangerous gap in the Resilience profile of an enterprise. Ultimately, Resilience can be considered an emergent property that concerns a system’s ability to deal with high levels of uncertainty and to adapt to Black Swan threats, and an emergent, adaptive process.

      An Enterprise Risk Framework is offered, which is suitable for establishing Organizational Resilience as a strategic objective that can be defined by competitive advantage, business continuity, stakeholders, and value for shareholders.

   5. 4. Complexity

      Khalil Dindarian

      Abstract

      Organizational Resilience is explored through the theoretical lens of complexity, which in turn enables the creation of an Enterprise Resilience Framework. An understanding of how Complexity Theory works allows management to build sustainable business continuity by improving decision-making capabilities and processes that are highly responsive to unexpected changes that occur both internally and in the broad environment. The delivery of a complex product into the global market must take into account the many elements involved that are not only complex in themselves but in the way they interact with each other. Complexity Theory can be applied to solving complex decision-making problems based on uncertain information, strategy, project performance and supply chain management, all of which require effective information processing and managerial interaction, along with the integration of information such as ideas, roles, skills and knowledge.

   6. 5. Enterprise Risk Management

      Khalil Dindarian

      Abstract

      Understanding ERM processes and their practical application helps us to discover how organizations can deal with emerging risks. Although the traditional ERM approach gained renewed interest following the 2008 financial crisis and is applied for legal and regulatory compliance, it is not very effective in addressing unexpected and potentially catastrophic risks. A more holistic approach to risk management is required, which we might call Enterprise Resilience. In this chapter, the various definitions of ERM and its processes are discussed, and the distinction between ERM and Enterprise Resilience is clarified, so that we might better understand the interdependencies of the risks that organizations face, and how they might align their strategy and objectives with such risks.

      Enterprise Resilience is designed to provide a methodology for the integration of emergent risks with strategic risk, and for recognizing the interconnectedness of risks so as to enable practitioners to interrelate emerging risks through robust analytical methods.

   7. 6. Building the Conceptual Enterprise Resilience Framework

      Khalil Dindarian

      Abstract

      An analysis of the four knowledge areas of Strategy, Resilience, Complexity, and ERM has allowed us to better understand their relationship with each other. We know that changes in the business and operating environment influence strategic thinking and decision-making, making strategic planning essential. It is now time to turn our attention to how this knowledge and understanding might be employed to create a strategy that will be effective in times of uncertainty arising from complex environmental changes that can severely damage business continuity. The proposed Enterprise Resilience Framework can form the basis of this strategy.

      The characteristics of strategic management are identified, with a look at the critical factors of strategic decision-making and those contributing to Complexity. The relationships between nine key strategic factors and resilience are established, and the processes of different ERM frameworks and risk factors are shown.

3. Case Studies and the Enterprise Resilience Framework

   1. Frontmatter

   2. 7. Case Study I: Delivery of a Complex Railway Programme

      Khalil Dindarian

      Abstract

      This chapter presents as a case study the delivery of a major high-tech engineering railway portfolio in which the author was involved as a project manager. The requirements of such projects are determined by a range of different stakeholders, influenced by a variety of technical, commercial, and financial players, and regulated by several social, legal, and watchdog bodies. Other factors such as project environment, resources, and objectives also come heavily into play. The makeup and interactions of those elements and entities, which are not always clear-cut or well-defined, were extremely complex in the project in question. In this chapter, those complexities are discussed and broadly categorized into four groups—Process, Organizational, Environmental, and Technological, and the organization’s ability to deal with them is addressed.

   3. 8. Case-Study Analysis

      Khalil Dindarian

      Abstract

      The focus of this chapter is on the internal and external factors that contribute to project complexity, on how the complexity factors in a project can be identified and, finally, on how already-identified project complexity factors can be dealt or at least coped with.

      The data on which the analysis is based are the result of research carried out by the author in relation to four categories of Project Complexity, namely Processes, Organizational, Environmental, and Technological. Further categories of Complexity are identified and included, such as Leadership, Resources, Information, Operational, People, Stakeholders, Economic, Financial, Legal, Social, and Risk-&-Uncertainty.

      The resulting POET (Process, Organizational, Environmental, and Technological) Complexity Framework can be subdivided into several sub-categories in order to determine the relationship that Complexity categories have with each other. This ensures that all Complexity factors have been considered in their various aspects, which should prove extremely useful in the application of POET Complexity, both in theory and in practice.

   4. 9. Case Study II Enterprise Risk Management

      Khalil Dindarian

      Abstract

      This chapter describes an ERM case study that includes the Governance process for ensuring the transparency of consequences and the way senior executives direct and control their organization. There are different interests and expectations at every level, such as the Audit Committee of the Supervisory Board, the Board itself, the Executive Board, the Corporate Risk Committee, the divisional lines, the business-unit lines, the country lines and, finally, middle- and lower management. Nevertheless, the Board of Directors provides a functioning ERM system that will not overlook any major issues that could harm the business.

      The way that corporate finance, risk management, and external audit functions—including governance owners such as IT, HR, legal-&-compliance, and the supply chain—cooperate with each other is presented, as is an explanation of how emergent risks are identified at corporate level. Furthermore, the decision-making processes on individual project portfolios, including business risk, legal-&-compliance, commercial, and various technical areas are discussed.

   5. 10. Development of Enterprise Resilience Framework (ERF)

      Khalil Dindarian

      Abstract

      The ERF has been developed around four areas: Resilience, Complexity, Strategy, and ERM, the first two being particularly important to this book. Enterprise Resilience is explored through the lens of Complexity Theory, to show how organizations can apply a holistic view—Complexity Thinking—to its ERM processes.

      The author’s research is concentrated in two strands. The first, a theoretical background to the four areas listed above, identifies the data sources other researchers have used and exposes the remaining gaps in the body of knowledge. The author’s aim is to show how Effective Emergent Strategies are characterized by Resilience, which in turn is concerned with Emergence—a characteristic of Complexity—and to illustrate how Complexity Thinking might be embedded into ERM processes.

      The second strand is an empirical study covering the exploration of Enterprise Resilience in practice, taking into consideration both the top-down and bottom-up management perspectives.

   6. 11. Conclusions

      Khalil Dindarian

      Abstract

      This chapter points out the benefits of using a novel Enterprise Risk Framework (ERF), suitable for building Organizational Resilience. This will hopefully serve to counteract any risks that can affect business activities to the extent that a company or organization suffers considerable damage or even has its existence threatened. The ERF is developed from the concept of the Complex Adaptive System, resulting in the POET Complexity Framework. This way, it can be ensured that the ERF applies to both the macro (top-down) and the micro (bottom-up) levels of an organization.

      The proper implementation of ERF can, hopefully, ensure business continuity, improve company performance, and allow competitive advantage to be maintained, even after events have occurred that would ordinarily be considered highly destructive. This should, in turn, protect stakeholder interests and the corporate reputation and brand, thereby retaining—and even increasing—shareholder value.

   7. 12. How Recognizable Is the Black Swan?

      Khalil Dindarian

      Abstract

      Black Swan events are wholly unexpected occurrences that happen outside the normal range of predictability, with potentially disastrous consequences. Since these cannot be predicted, we must be prepared for the unexpected. Retrospective knowledge is useless when we have already suffered serious consequences. Since Black Swans can be so destructive in macroeconomic and geopolitical terms, Resilience becomes particularly relevant. Governments and organizations, had they applied the principles described in this book, would arguably have been better prepared to deal with recent events when they arose and to prevent the negative outcomes we witnessed.

      What we must therefore ask ourselves is, how can we identify those emerging risks and assess them, and then embed the findings of our assessment within strategic management and decision-making processes? By doing so, we can be much better prepared for Black Swans so that we can not only neutralize their impact but even capitalize on it.

4. Part III

   1. Frontmatter

   2. 13. Demographics, Education and Employment Dynamics

      Khalil Dindarian

      Abstract

      Our world is inherently complex and highly dynamic, subject to rapid change. Two man-made systems, namely geopolitics and macroeconomics, are the main drivers of global world system change. This chapter takes a closer look at the complexity of both systems and at the structural and behavioral changes that occur within them resulting from the volatility of elements such as the balance of geopolitical power and political decision-making. These elements, in turn, are determined by factors that include demographics, access to natural resources and raw materials, energy demand, technology, and the availability and distribution of goods and services. In addition, geopolitical power is determined by the military resources and levels of military spending of individual countries and regions of the world.

   3. 14. Earth’s Resources: The Challenges

      Khalil Dindarian

      Abstract

      All countries, especially industrialized ones, need resources. We need energy for industry and transport, minerals for manufacturing and production, and of course, food and water for survival.

      Increasingly, however, fluctuating markets, prices, and availability are a global problem. Human development has come at a price, and many of the resources necessary for our survival are already in extremely short supply. Minerals extracted from nature are increasingly limited, with copper, lead, tin, and tungsten already close to depletion. We have, in recent times, had a glimpse of possible future calamities, with climate change, rural depopulation, and changes in land use all affecting food supplies, while clean fresh water is becoming scarcer from drought and pollution. Energy sources such as oil and gas are affected by wars, political decisions, and increased demand. All these factors and problems are interconnected in a very complex way, and there is a pressing need for solutions before it is too late.

   4. 15. The Changing Nature of Politics, Globalization and Business

      Khalil Dindarian

      Abstract

      The global system is often considered in the context of our economic, political, natural, and social systems. In today's rapidly changing world, unexpected events that can have positive or negative consequences are occurring more frequently than ever. Despite this, the emerging risks within the global system are still met with reductionist procedures, which need to be re-examined considering the increasing complexity of that system. This complexity is strongly related to the geographical and political systems, a connection exemplified by the case of the Berlin Wall, a symbol of the Cold War between two very different political systems. The “Fall of the Wall” in 1989 not only reunited a city overnight but signalled an impending change of political system that would be critical for Germany and Europe. These changes created their own complexities, which we consider through the lens of geography and politics, but with economics in mind.

   5. 16. So, in a Nutshell, What is Enterprise Resilience?

      Khalil Dindarian

      Abstract

      Our world is changing faster than ever, becoming increasingly complex in the process. Many issues currently face mankind, with serious future ramifications, including digitalization and the socio-technical system, climate change, and globalization. Political upheaval, wars, natural disasters, pandemics, and economic recessions have all had massive negative impacts on our society. In this new complex world, governments and organizations must learn to anticipate and deal with these emergent risks, whose integration, along with the management of Black Swan events, has assumed paramount importance. This is the huge challenge now facing senior managers, leaders, and experts.

      Half the battle in solving a problem is recognizing its existence. This book has, hopefully, given the reader an insight into how future problems that threaten our business, organization, or community might be resolved, avoided or, at the very least, recognized before they affect us.