When Everything Is Connected to Everything Else

As an ancient proverb teaches us, sometimes the kingdom can be lost for want of a horseshoe nail. An industrial products CEO recently explained to me that his economics are currently driven by trade tariffs, which in turn depend upon the fickle process of trade negotiations, which are themselves shaped the shifting sentiments of a polarized voter base, all in the context of a very hard to read economic climate. Sometimes everything is connected to everything.

In the simplest of times, we can treat the business environment as a given and focus on maximizing the efficiency of delivering a stable offering. The perimeter of what needs to be considered can be conveniently drawn at the boundary of the company. More often, we need to consider the impact economic cycles and the activities of a handful of known competitors. Our boundary of consideration then needs to include the entire business system.

Currently, leaders need to draw this boundary even more broadly, and give consideration to economic volatility, trade policy, social sentiment, technological disruption, market volatility, ecological impact, and political risk. How then can they plan?

The bad news is that they can’t realistically depend on precise point forecasts. The good news is that this isn’t actually necessary providing

1. they ensure the survival of the enterprise
2. they are adapting to and shaping the environment more effectively than competitors.

Resilience becomes critical in such circumstances. Research on natural and man made systems, shows that resilience can be conferred by 6 attributes, all of which trade off against short run efficiency. Resilient systems exhibit redundancy – buffers for hard times, heterogeneity – diversity of mechanisms for diverse circumstances, modularity – fire breaks preventing system collapse, adaptation – learning from experience, prudence – preparedness for plausible risks and embedding – coherence with broader social and ecological systems.

Presently, business leaders should give as much weight to resilience as efficiency and ask themselves: is our enterprise resilient to plausible risks in the business system and beyond? Are we monitoring and modeling such risks? Do we learn and adapt faster than competitors? Are we good at turning adversity to advantage?

Much has made recently of the importance of purpose in motivating and aligning employees and creating an attractive and durable brand. At a deeper level, we can view purpose as a high level goal to ensure positive contribution to the social and ecological systems in which businesses are embedded. In other words, rather than managing broader system risks piecemeal, we can ensure consilience between these higher level goals, business models and procedures and employee values. Purpose can help prevent us from pursuing efficiency at the expense of resilience.