Extreme Uncertainty reflects the length of time and the magnitude of impact of the crisis and it is becoming the new normal for management.
Around the globe leaders have learned to deal with various types of crisis, they come in some standard ways, natural disasters (such as earthquakes, fires, floods, cyclones, hurricanes and tornadoes), economic disasters (economic crisis such as recessions / depressions /GFC or Asian financial crisis), infrastructure disasters (such as Fukushima, rolling power brownouts) and environmental disasters (too many to mention).
“Due to the severity of this crisis, many organizations are in a struggle for their existence. An existential crisis puts at stake the organization’s survival in recognizable form.“
The difference that these disasters have to the situation leaders face around the globe is that those were all confined by industry or geography and the magnitude of the impact decreases steadily with time. “In the present crisis, however, elevated uncertainty is globally pervasive, and events trigger compounding effects“.
As organisations have faced these crises they are dealing with extreme uncertainty racing to deal with the the public health environment, public policy, customer behaviour, and the rapidly changing economic environment. Such extreme uncertainty on a global scale is very rare and as such it is not something that organisations effectively plan for.
The COVID 19 crisis has made a mess of corporate plans around the world, the existing business and workforce plans that were put in place for this financial year were based on different revenue assumptions, different costs of supply and the availability of skills and workforces to meet the resourcing demands.
So the carefully prepared plans are now all out of date and are going to be fluid for sometime. Leaders need to adapt to this new extreme uncertainty with flexibility and a range of options that they can apply to the organisation if and as challenges rise, what’s more they need to be ready for all of the alternatives for an extended period as navigating extreme uncertainty becomes the new normal.
The McKinsey authors point out that the COVID19 operating environment requires managers to rethink and re-examine thought processes and challenge assumptions. The risk of not doing so could lead to:
- Optimism Bias – as it suggests is taking a bias to the mildest scenario.
- Information Instability – statistical models and data are constantly changing and you need to be closest to the current projections and its potential impact on your business.
- Wrong Answer – sometimes you will have it wrong, leaders need to be ready absorb and move on from wrong answers, look for opportunities to update underlying assumptions.
- Paralysis by Analysis – You can’t just delay because the information is continually moving – delay is an an action and it has its own consequences.
- Organisational Exhaustion – Watch for the toll on the mental and physical health of leaders and staff.
The earlier an organisation accepts it is in a crisis and fires up its crisis response the more effective it is likely to be. There three aspects of a crisis management system to establish.
- Early Warning or Alarm System – an appropriate system that tells you that the business is facing significant issues that indicate a potential crisis.
- Integrated Nerve Centre – Having a formal decision making authority that has the credibility and is able to take leadership, overseeing the organisations response.
- Transparent Operating Principles – by having a set of clear guiding principles that direct how leadership and the organisation is going to collectively respond and behave.
Discover, Design, Execute
With such rapidly moving events, organisations need to make speedy decisions. This requires a change to the operating cadence to identify and rapidly respond with decisions.
“The operating cadence in which managers meet, discuss, and take action needs to match the evolution of the crisis. This does not imply a simple speedup of existing processes to accommodate the information needs of managers. Rather, it means creating entirely new procedures.”
Such extreme uncertainty demands that leaders need to take existing plans and make iterative updates and decisions. Managers must work together to discover, design and execute solutions. They need to recognise the practical implications, consider the alternative ways it might evolve and then execute the appropriate actions.
Extreme uncertainty—defined in terms of novelty, magnitude, duration, and the rapid pace of change—creates a complex and difficult operating environment for leaders and firms. This radical change calls for new forms of leadership, new ways of working, and new operating models. Crisis-tested managers will have to develop a tolerance of ambiguity, a quickened operating cadence, and build a culture of constant refinement, review, and revision.
“Management structure and processes need to be adapted, too, as the crisis unfolds, to ensure the organization is sustainable and can take advantage of new opportunities.”
Key Takeaways
- Extreme Uncertainty reflects the length of time and the magnitude of impact.
- The old plans and processes will need to change and leaders need to be able to deal with ambiguity, flexible to change and iterative in planning.
- Establishing a crisis management team to identify early, take leadership of the situation and apply transparent operating principles.
Synopsis of an article from McKinsey When nothing is normal: Managing in extreme uncertainty By Patrick Finn, Mihir Mysore, and Ophelia Usher Published: 2nd November 2, 2020 https://www.mckinsey.com/business-functions/risk/our-insights/when-nothing-is-normal-managing-in-extreme-uncertainty?