STOP BEING DAUNTED — SEE THE OPPORTUNITIES
Directors and executives spend a great deal of time trying to understand and mitigate risk. It is their job to do so. They have a duty to protect the value of the business or organisation. But it is also their duty to create value. The evidence would suggest they are not very good at doing either.
It may be that they are looking in the wrong place when considering threats. Often the focus is on external factors as the source of risks, with PESTLE analysis being the favoured tool for categorising them into political, economic, social, technological, legal and environmental risks. Then there is the concern about what the competitors are up to. But, as I explained in a recent article, the PwC Crisis Survey 2019 shows that the real source of risks is internal. External factors may exacerbate the problems, but they are rarely the main cause. The post-mortem following almost every corporate crisis confirms that bad strategic decisions and management failings were the root cause in almost every case. The problems were predictable, and often they were predicted, then wilfully ignored.
With so much time spent looking in the wrong places to identify and mitigate risks leaders are left with little time to spend identifying new value creation opportunities. And it should be the scale of opportunities that we find daunting, not the risks. This is the main message in A Good Disruption: Redefining Growth in the Twenty-First Century by Stuchtey, Enkvist and Zumwinkel (Bloomsbury 2016).
If value is created by solving problem, there is no shortage of problems to be solved is the core of their argument. Added to which, new technologies mean we now have the means to solve many of them, profitably. So, the forces of disruption can be directed to ensure we experience a good disruption. Doing so could achieve growth that is not just sustainable, but also Net-Positive in terms of costs versus benefits to the environment. And there is an abundance of profit pools to be tapped into in the process according to the authors, all former McKinsey & Company executives who back their claims with extensive research.
The main focus of the book relates to the value firms can create by helping save the planet. But studies have also identified the huge opportunities for value creation by achieving the Sustainable Development Goals which include, but go beyond, environmental concerns. It has been estimated that work towards achieving the goals will create “at least 12 Trillion U.S. Dollars by 2030”.
Some are beginning to see that helping to achieve the SDG goals is an opportunity, many more look at the goals as a compliance issue and are concerned more with the costs than the opportunities. But this is beginning to change as the rapid increase in impact investing indicates.
Whilst PESTLE analysis is traditionally used as a way to identify threats, I think it could also be used to identify opportunities, including those related to the 17 sustainable development goals, allowing firms to see how they might create value in relation to each goal, rather than just using it to monitor associated risks.
The above is one example. I have shown how PESTLE could be used to look at both threats and opportunities, and as a way to make sense of the sustainable development goals in a business or organisational context.
By using PESTLE internally, not only externally, I think it is also possible to relate the business positively to the external realities. I call the external focused version ePESTEL and the internal focused version iPESTLE
A business or organisation could use the iPESTLE to consider how appropriate its values, policies, practices and behaviours are in relation to the goals it sets for creating value, then realise the value creation and growth opportunities that are to be had by addressing societies needs. And a development strategy might focus on strengthening the organisations capacity to achieve objectives related to each PESTLE category.
Taking the capacity development idea further, I think local, regional and national policy makers and governments might also use a PESTLE framework to a assess the existing capacity and development goals when developing their strategies. They would be the cPESTLE (community), the rPESTLE (Regional) and the nPESTLE (National).
Just as each of the PESTLE categories is sub-divided in the case of its use in relation to the sustainable development goals, it would also be sub-divided for any other use. Each of the PESTLE factors and each sub-category refers to a system. Collectively they represent a system-of-systems that the functioning of an organisation or society depends on.
Widely shared sustainable prosperity, defined in terms of human flourishing and wellbeing, should be a concern of every business, organisation and institution in society. They determine the capacity of each system to perform well in pursuit of our goal as a society. But we must take a holistic view of the whole to see how each part is interdependent. And we must recognise the nature of different types of systems if we are to manage them well and understand our impact on them.
One of the board categories of systems are natural systems.
Another broad category of systems are the social and man-made systems.
Each of the systems and system-of-systems are interdependent. They could be viewed as a hierarchy of systems but, I think it is better to view them as a constellation of systems in order to understand the connections and interdependencies. In this way we might develop a better understanding of the nature of the issues we are dealing with and get a better understanding of ways to manage complexity without being daunted by the challenge.
Today it seems few are able to recognise the nature of the challenges they face as individuals or organisations. They are daunted and overwhelmed. As a result our ability to meet the our needs and achieve a state of human flourishing and wellbeing is being hindered.
Managing complexity has long been understood to mean managing a mess. But as the OECD recognises this remains a challenge. It is the challenge that must be addressed if we are to achieve the Sustainable Development Goals, a step on the journey towards sustainable widely shared prosperity.
Whilst Ackoff described them as messy problems. Rittel and Melvin M. Webber formally described the concept of wicked problems in a 1973 treatise, contrasting “wicked” problems with relatively “tame”, soluble problems.
The nature of wicked problems requires new ways of thinking. The theories, methods and tools currently taught in most business schools are simply outdated.
By combining a broader use of PESTLE with Systems Thinking I believe we are much likely to recognise the interdependent nature of relationships within and between systems-of-systems at all levels (nano to meta), enabling us to better understand and manage messy / wicked problems, such as the Sustainable Development Goal challenges.
When we are better able to manage messy or wicked problems, we might also design better systems, and positively respond to those beyond our control. In this way we can also reduce the risk of generating unintended consequences. And with a greater degree of congruence we might also enhance the prospects of better outcomes — outcomes more likely to enhance prosperity and wellbeing such as a 21st Century health system advocated by Vision4Health.
In taking this approach it is possible to minimise risks and do less harm. But the real opportunity comes when we see that this is the best way to meet our needs, now and in the future. It is the best way any business, organisation or institution can think about creating value — which is their only purpose. Through good stewardship they create the conditions in which value can be cultivated and sustained.
To contribute to the prosperity of society is an obligation of all organisations including businesses, under the terms of their Social Contract. It is how they earn the right to exist that society grants them. And this Social Contract concept has strong roots. It has existed since the time of Plato and was expanded upon by other philosophers including Hobbes, Rousseau and Rawls.
The ideas I have expressed in this article are core elements of the concepts I have been developing, Valueism and Social Contract Accounting. The focus of both is value creation measured in terms of a contribution to sustainable widely shared prosperity i.e. human flourishing and wellbeing. And an easy way to define sustainability is ensuring the interests of future generations are also served.
My hope is that the use of the PESTLE framework can be expanded in the way I suggest, then combined with Valueism (“the next evolution of capitalism focused on value creation”) and the new accounting standard I call Social Contract Accounting. Together these concepts and tools will make the challenges leaders face less daunting and the opportunities much clearer and more attainable.
For an introduction to Valueism and Social Contract Accounting read this article
The ideas in this article, and many relate to the issues we explored in London on March 9th 2020 at a conference, UNDAUNTED: How Successful Leader Face Up To Wicked Problems and Avoid Predictable Surprises”. Related publications will also follow.