OToday we work in a VUCA world of Volatility, Uncertainty, Complexity and Ambiguity. The world has become complicated, where no forecaster wants to forecast beyond 400 days. Yet investors and regulators want to see sustainable strategies for 3 years and executives are accountable for outcomes, including criminal liabilities. So how can KYO aid management with strategy, risk and compliance in the VUCA world.
We are moving into a world of Just In Case Management where we cannot predict a future, but need to cater for multiple possibilities. This goes beyond identifying what are worst case scenarios, this is about how to manage those scenarios in detail.
Consider pilot training. We don’t know what scenarios a pilot may face, but we do know that they will more than likely face an event that could put hundreds of passengers at risk. We train pilots to have the capacity to adapt and respond to what ever is thrown at them. A key training tool is a flight simulator. We create disaster scenarios in high stressed situations for them to learn without killing all their passengers. More importantly we create multiple problems, because Murphey’s law states problems always come in threes. So, we have a pilot trying to land in a thunderstorm with a failed engine and the runway lights going out, or some range of events that would require clean underwear afterwards.
We do not train pilots to survive the expected, we train pilots to survive the unexpected. Yet we do not train management to deal with the unexpected. The phone rings and a significant issue is developing. Management do not have time to reflect, to get advice. They must react, and they are usually unprepared for what is occurring.
With KYO, we train management in the structures of the business. In understanding the structures, they have better coping mechanisms. This is why “Know Your Organization” is becoming so critical. With KYO, executives are more certain with what the outcomes of an action will be and can act with confidence. We are now seeing regulators become more focused on meso-prudential regulation and pushing KYO on business to mitigate systemic and systematic risk.
Secondly, KYO enables management to learn from scenarios as pilots do in flight simulators. Scenario management and stress testing are key ways management can prepare for a VUCA world. We can take a tree year strategy and apply different scenarios against the plan to understand the impact. More importantly, we can model recoverability scenarios for such events.
This looks daunting, but the benefit is in the confidence businesses provide stakeholders in such scenario modelling. As an insurance company I would price more favourably a business that practices Just in Case Management than a business that does not. When it comes to innovation, if I can do scenario modelling of new business models, then everyone will become more comfortable in changing direction.
The VUCA world will not go away, but through Just in Case Management we can assist management to better manage volatility and uncertainty.