Planning for the Unthinkable Through Relentless Innovation

Joshua Cooper Ramo’s new book, The Age of the Unthinkable, provides a useful portrait of our difficult times, and an even more useful set of frameworks for how we ought to be dealing with it.

Ramo shares insights he has gathered through dialog with some of what appear to be the world’s most interesting thought leaders in the military, business, science, philosophy, and economics, and together they enable him to define the nature of the challenges we face in a compelling way that justifiably should attract attention.

The strength of the book is not necessarily that his thesis is stunningly new – the warnings have been increasing for decades that Western society has been following a dysfunctional set of decision-making strategies. But Ramo links his analysis of contemporary events such as the financial collapse and the failed US occupation of Iraq to broader issues that relate ultimately to the very models of reality that decision makers use, and then to illustrate how flawed models lead to disastrous outcomes.

In the end he proposes to a set of strategies that converge on a single conclusion: the only way we’re going to survive in the world of the future (which, by the way, has already arrived) is through innovation.

More specifically, “steady, intense, relentless innovation.”

Having identified the “what” and “why,” however, Romo does not deal with the “how,” leaving it to the reader, and perhaps to the literature on innovation, to deal with that aspect of things.

We may have a few suggestions in that regard, starting probably with the book that this blog is designed around, Permanent Innovation.

When the Improbable Comes Crashing In (Like Now)

I have been reading a very interesting book called ‘The Black Swan,’ all the more timely because it’s about events that are ‘highly improbable,’ and also significant. Such as the current global financial crisis.

Author Nassim Nicholas Taleb’s basic argument is that most statisticians and economists have adopted a quantitative approach to risk assessment that is mathematically elegant but incomplete, and relying on their misguided models they have created a series of debacles, of which our current crisis is one.

Being neither an economist or statistician myself, I am not qualified to judge his argument from a professional perspective. However, as an observer of the modern world (as indeed we all are), his comments make eminent sense. And more importantly, they have significant consequences for the strategic thinking that every business leader must be agonizing over amid the tumult.

If you’re like me, you’re thinking, ‘This had better not ever happen again,’ followed immediately by, ‘But if it does, I’d better be ready …!’

Here are a few quotes that embody the pertinence of the book (remember, the book was published in 2007, ergo written before that):

1. “Regulators in the banking business are prone to a severe expert problem and they tend to condone reckless but (hidden) risk taking.” (p 209)

2. “The government-sponsored institution Fanny Mae, when I look at their risks, seems to be sitting on a barrel of dynamite, vulnerable to slightest hiccup. But not to worry: their large staff of scientists deemed these events ‘unlikely.’” (p 225)

3. “We have a paradox. Not only have forecasters generally failed to dismally to foresee the drastic changes brought about by unpredictable discoveries, but incremental change has turned out to be generally slower than forecasters expected.” (p 168)

The book isn’t the easiest reading, but it is enormously helped by Taleb’s remarkable candor (he goes on a multi-page rant against the Nobel Prize committee, among other amusings) and his self-confident irreverence (as evidenced in the quotes).

What does all this mean for strategy? A lot, I think. I’m still sorting it out, as these are not simple issues and the models that Taleb provides are so different from what we have been accustomed to that it takes time to digest. Nevertheless, it’s clear that a deterministic approach to strategy is surely doomed.

Of course we know this already - that’s why scenario-based planning is superior to the prediction business. It’s better training for the decision makers, and provides better ground for assessing risk because it attempts to account for the massive and unpredictable events that give the book it’s title.

Still, we mollify ourselves with the annual forecasts made by trend-watching firms (what will be ‘in’ next year?), economists (when will the housing market turn around), and governments (‘social security will be broke by 2025. No, make that 2040. I mean 2030. Actually, we don’t know.’)

Taleb is getting a lot of attention these days, deservedly. And I (and probably many others) will be thinking about what his models mean for the organizations we manage and consult with.

If you have grappled with these issues I would welcome your input.

Nassim Nicholas Taleb. The Black Swan: The Impact of the Highly Improbable. Random House, 2007.