Originals: How non-conformists will ultimately disrupt the world of Risk Management by Warren Black

Riddle me this

Where is the Steve Jobs, Elon Musk or Mark Zuckerberg of Risk Management?

Where is that unashamedly disruptive, perpetually innovative, closely followed, highly quoted, global trotting original pioneer to lead the risk management discipline into the next generation? Does one even exist?

Context

Over the recent holiday break I read Adam Grant’s 2016 New York Times Best Seller, “Originals, how non-conformists move the world”. It’s a professional motivation book about how those non-conformists who dare to think differently tend to lead in all areas of innovation. Now although many books have been written in this vein over the years (about 100 books on Steve Jobs alone), Originals tends to focus more on those ordinary people who became highly successful not because of their personal brilliance; but rather because they were the first who genuinely dared to defy the convention of their time. This is the golden ticket of Originals – ordinary people can achieve extraordinary things merely by challenging that which has become conventional.

The book’s underlying message is that conventional thinking can not promote innovation nor growth which is why genuine paradigm shifters and thought leaders are unashamedly critical of the accepted rules and paradigms of their time. Further more, they do not fear being an outsider to a particular industry method nor do they accept that just because they are outsiders they are the least informed or capable to illicit change.

Consider how Steve Jobs completely revolutionised the music sales industry with the iPod or how Mark Zuckerberg completely revolutionised the personal communication industry with Facebook. In both cases they were outsiders to the very industry they revolutionised and they did it without the direct support of said industry, mostly because the respective industries were far too self invested in the status quo to recognise that times had changed.

This then got me thinking; who are the Originals of Risk Management? Off the top of my head I could not answer this question myself, so I conducted a Google search of “who is the world’s leading risk management innovator / influencer / thought leader” and not a single recognisable individual came up in all three searches, only links to brand name consulting firms who claim to be innovative in their approach to risk management, but are not really. The truth it seems is a little bit sad, there are currently no globally recognised risk management influencers nor innovators leading our discipline.

Risk management in 2017 – a tale of conventional stagnation

When last did someone genuinely rock the conventional risk management paradigm?

Since Stanislaw Ulam introduced predictive data analytics (Monte Carlos) to the risk community over 60 years ago has any other major advancement in risk management actually occurred? With the exception of the odd brief ray of light, the risk management profession doesn’t seem to attract that many genuine innovators nor does it appear to illicit that much professional energy and excitement. Risk unfortunately still appears to be the domain of “grey souls in grey suits” and perhaps this explains why nothing truly original, nor paradigm shifting has emerged from the profession in over 60 years.

What makes this observation particularly alarming is that over the last decade our working world has changed dramatically as we have moved out of the process driven Industrial Age and into the more agile Information Age. We now exist in an age of serial entrepreneurship, innovation and disruption yet industry accepted risk management methods have not evolved accordingly. How is it that we are living in the most complex, dynamic and highly unpredictable era in human history and risk management still appears to be endorsing management control techniques that arose during the Industrial Revolution over 100 years ago?

Equally alarming is how many organisations seem to be now visibly challenging their investment in risk management. With the exception of perhaps those sectors that are legislated (e.g. finance and safety), advertised risk management roles have declined significantly over the past 3 years since the global natural resources depression began and many major organisations have been observed to significantly reduce their risk management full time roles in an endeavor to reduce overheads.

The implication is that since the highs of the post Global Financial Crises (2008) when risk roles were suddenly abundant and risk management the hottest topic in town, risk as a remunerated management discipline has taken a noticeable beating. The shine of the discipline has dimmed and is now potentially stagnating primarily due to a lack of innovation and growth and although this may sound depressing, the upside of this is that the time is ripe for a major disruption to occur and this in itself is exciting.

When the time for disruption is nigh

The book Originals teaches us that almost all industries reach a stagnation point at some time, normally when old ideas and practices start to struggle to add value to the new needs and paradigms which have emerged from an ever evolving industry. It is at this point that the people invested in the particular industry start to struggle with the realisation that the old ways of thinking are no longer adding the measurable value it once did.

But in order for true innovation to occur the invested community needs to first get over their own complacency for the incumbent rules which define the industry.

The pitfalls of acceptance and complacency

A particularly interesting insight offered by Originals is the notion that complacency breeds mediocrity which in turn ultimately breeds stagnation. That is, the more familiar you are with a particular domain and the more invested you become in endorsing a particular paradigm, the less likely you are to challenge the convention of the time and therefore the less creative you become. Most stagnant environments are fueled by a blind acceptance of the status quo combined with a reluctance to change. This helps explain why innovation so often comes in a disruptive form from outsiders as the insiders were too conventional and conformed to promote the necessary change.

I believe this to be particularly problematic in the world of risk management right now, I see far too many appointed risk officers blindly following the industry/organisation mandated risk methods without genuinely questioning their effectiveness or contextual relevance.

Such reluctance to challenge the status quo is the kind of complacency that is the death of all innovation, and I believe this is the point Originalsis trying to make. We are more likely to accept the mandated “rules” which govern the status quo because it is far easier than challenging the rules. The problem however is that most of the rules we choose to follow are artificially validated and are therefore at some level wrong.

Most rules are artificially validated

Originals suggests that because of our natural reluctance to follow the harder path, it is common that we fall into the trap of believing the industry mandated rules purely because some Governing Body endorses them as “the standard”.

However in almost all cases, the incumbent rules are designed and governed in a manner that benefits those who oversee the rules, i.e. the governing body itself. From governments, to statutory bodies, to company boards to learning institutions – the rules that they endorse are designed more as a means to keep themselves in a position of authority than as a means to elicit innovation. This is why so many rules are so easy to disrupt, because in almost all cases they are artificially validated.

Just look at how Uber disrupted the laws of booking a Taxi or how AirBnB disrupted the laws of booking accommodation. In both cases, there were extremely stringent rules in place protecting a well-established industry, but the rules were not designed to benefit innovation nor shifting customer needs, they were designed to protect the governing bodies who generated fees from the application of the rules. Uber and AirBnB both recognised this stagnation point and said, “We shall see about that”.

Most rules are artificially validated, which is exactly why most rules are open to disruption

My favourite case study of how most industry mandated rules are artificially validated is that of Encyclopedia Britannica. For over 200 years Britannica was the world’s leading authority in printing reference book sets on everything you need to know about everything. Since 1768 Britannica had built up a global sales and distribution empire of their intellectual capital which they housed in beautifully bound leather book sets spanning between 6 and 32 volumes. In 1990, a typical 32 volume Encyclopedia Britannica book set cost over $500 and was a once in a lifetime mandatory purchase for every parent who wanted their kids to grow up informed.

Then around 1994 Microsoft approached Britannica with an offer to put their entire knowledge base onto a CD-ROM format and mass produce it as part of the Microsoft suite of tools. The Britannica leadership in their wisdom declined the offer stating that an Encyclopedia was “a book of reference” not a CD-ROM.

The irony that this very definition was one made up by Britannica themselves and was only published in the book sets they sold, seemed lost on the Britannica leadership. So Microsoft went off and made the same offer to a little known niche player called Encarta who then replaced Britannica’s $500, twenty kilogram, static book set with a twenty-five gram, interactive CD which came free with every Microsoft Windows purchase. The new format was so popular that by 1999 Encarta was the new global market leader and 200 year old powerhouse Britannica was insolvent.

The Britannica case study is a powerful lesson in how many industry standards are artificially validated so as to benefit the very governing authority that benefits from the incumbent position. In 1994 an encyclopedia was only seen as a “a published reference book” because Britannica the world’s leading seller of such book sets said it was so. Microsoft an outsider to the industry refused to buy into this artificially validated definition and the rest is history. Ironically, within another ten years of Encarta’s rise to the top, the very concept of an Encyclopedia would all but disappear as new entrants Wikipedia and Google once again redefined how we seek out and reference information.

So what about risk management?

So what can the Art of Risk Management learn about complacency and artificially validated rules?

Well risk management like every other management discipline is governed by a series of industry accepted and organisational mandated rules. But none of these mandated rules are actually Newtonian Laws, in many cases they are no more than better practice guides. Few (if any) of these accepted risk management standards are an outcome of the scientific research method i.e. they are not empirically tested nor independently validated. Rather in almost all cases they are a combination of communal opinion, professional judgement and experiential logic – what they are not, is absolute and unquestionable.

What Originals teaches us is that just because the Industry Governing Body states “this is the Standard” or the Organisation states “this is the rule”, we shouldn’t be afraid to question the conventional thinking that surrounds it. Our world is evolving too quickly to become complacent and invested on only one point of view. Originals states quite boldly that those who don’t regularly challenge convention are only setting themselves up for long term complacency and mediocrity. Thus not only is it our right to the challenge conventional risk thinking, but it is our duty!

So who are the current Risk Management Originals we can learn from?

An Original is a non-conformist who challenges (or disrupts) conventional thinking in light of more modern contextual needs. With this definition in mind, what does original, non-conformist and potentially disruptive thinking look like within the current risk management universe?

Here are some examples below of existing risk management Originals, none of whom are currently employed within the risk management profession. However, their findings have tremendous implications and applications for the future of the risk discipline and thus those of us who are invested in a better future for this discipline, need to start paying closer attention to such original thinking.

Kahneman & Tversky – Daniel Kahneman and Amos Tversky are two Nobel prize winning psychologists whose work on biases in decision making is now legendary in management science circles. Kahneman’s solo work “Thinking, Fast & Slow” is a New York Times best seller (2011) and contains a dedicated section as to how risk based decisions are made – a book section I highly suggest all appointed risk officers accustom themselves to. The fundamental learning from this book is that risk systems (eg analytics, registers, reports and software) are less influential in helping leaders make decisions than their personal biases and heuristics. More to the point, leaders are more likely to make risk based decisions based on a broad array of irrational factors (eg bias, fear and politics) than they are based on the content of a sound risk report or precise Monte Carlo analysis. Kahneman & Tversky’s work shatters the myth that quality risk reporting systems and data are critical in to helping leaders make risk informed decisions. Rather, it is the organisational culture and internal biases that ultimately determine how a leader makes a decision, which in turn validates the importance of embedding a robust organisation-wide risk culture over the need to invest in a robust organisation-wide risk reporting system. What makes Kahneman & Tversky “Risk Originals” is that they proved through empirical study that if you wish for an organisation to make better risk based decisions, improve the organisation’s risk culture not its’ risk reporting capability.

Stanley McChrystal – General Stanley McChrystal was the leader of the joint task force in Iraq during the mid-1990’s and was tasked with bringing the rising Al Qaeda threat to bear. The manner in which he did this serves as a published case study (Team of Teams, 2015) into how the principles of complexity science can control risk in wildly disordered (chaotic) situations. McChrystal recognized that traditional risk management strategies which were based on attempting to “predict” the next threat were simply not going to work in Iraq due to the high dynamism, irrationality and complexity in play. So he threw out all the old cold war era methods of covertly trying to identify the next threat and moved towards real time information sharing across multiple intelligence agencies. Basically what he did was ignore the traditional views of risk control and adopted a more agile and real-time information enabled approach to control. McChrystal’s approach shatters the myth that the best way to control emerging risks is to attempt to systematically predict and quantify them (aka the traditional risk method). Rather a better way to control emerging risks in highly-complex situations is to improve data visibility, inter departmental collaboration, information sharing and the speed of decision making. What makes McChrystal a “Risk Original” is that he proved though physical case study application that you don’t need to predict risks in order to control them.

Chapman & Ward – Chris Chapman and Stephen Ward are academics who have been publishing the merits of substituting “Uncertainty Management” over conventional risk management for a decade now. Chapman & Ward believe that the fundamental flaw of the conventional risk management approach is its’ over dependence on “predicting” risks. They believe this endeavor has limited potential as no matter how many risks are identified an equal amount will not be identified (think Unknown-Unknowns), thus the predictive risk approach is inherently impaired. Chapman & Ward advocate that a better way to controlling entity-wide risk is to rather mature those control areas which are highly uncertain (aka immature, non-performing, impaired) as it is these control areas that are most likely to emerge the next material risk; in so doing risk officers neutralise risks before they arise. Chapman & Ward’s Uncertainty Management approach challenges the view that risk management is about proactively identifying, measuring and documenting (aka predicting) risks, as this method is biased towards controlling only those risks which are foreseeable and obvious. Uncertainty management focuses rather on maturing key areas of uncertainty and is thus believed to have more potential to control both foreseeable and unforeseeable risks than the conventional risk methods. What makes Chapman & Ward “Risk Originals” is that they have developed a risk control approach that focuses on maturing controls in order to reduce the uncertainty that creates risks, rather than attempting to actually predict the risks.

Snowden & Boone – In the mid 1990’s IBM started working on a management model to help their team leaders make effective decisions on various complex work challenges. Over the years this model morphed into the Cynefin Framework for Decision Making and its caretakers (David Snowden and Mary Boone) have since established it as a mainstream management model for helping leaders make effective decisions when faced with complex challenges. What makes Snowden & Boone “Risk Originals” is that they were the first to look at how situational complexity effects risk based decision making. Their work shatters the myth that a single, static “one size fits all” risk solution will do as different states of complexity each create very particular organisational behaviors and thus all forms of management control (including risk management) must be tailored accordingly. Snowden & Boone’s work proves the need to customize risk management on a case by case basis and not merely accept a blanket, organisational wide solution.

It is not just our right to challenge conventional risk thinking, it is our duty!

So what – why bother ?

Although the book Originals focuses predominantly on the need to avoid mediocrity and eventual stagnation though Original thinking, a hidden gem within the book is the observation that original thinkers tend to be much closer to achieving workplace happiness than those who merely conform. That is, workplace Originals tend to be purpose driven and thus are more fulfilled than their comparable peers.

The key to work place happiness is to become an Original, not merely to serve as one of the conforming masses

Although most Originals will almost certainly experience periods of frustration and despair as they swim against the stream of conventional thinking, their shear passion for the change they seek tends to overcome all obstacles and in the long run they are proven to be happier and more fulfilled in their chosen purpose. I love this notion as what it suggests is that the key to work place happiness is not to merely serve as one of the conforming masses, but actually to become an Original.

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This submission is part of a series of thought pieces which have been developed whilst engaged in a Higher Degree in Research into “Controlling risks in complex-uncertain project environments”

Follow my research on LinkedIn whereby I will regularly post conceptual learnings and dilemmas for industry practitioners to review and hopefully comment on. Also please feel free to share this thought piece with like minded professionals who may also be interested in the topic.

This thought piece is Copyrighted (text only) to Warren Black (2017) a Higher Degree in Research Candidate at the Queensland University of Technology

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