The former British Prime Minister Harold Macmillan, when asked in the early 1960s about the greatest challenge of heading a government, is reported to have said: ‘Events, dear boy, events’. The issues that had been in no one’s diary – scandal, conflict, coups d’états – tended to pose the most formidable challenges.
Six decades on, both politicians and business executives are discovering that the ability to confront ‘events’ – to be able to stay calm and make good decisions when faced with unexpected challenges – has become an imperative. While it has never been the case that conditions for business have been stable and predictable, we are currently living through a period of exceptional volatility.
It is likely that certain types of crisis are becoming more common, with their effects spreading more rapidly, as a result of greater connectivity. The same trading and communications networks that deliver goods and services swiftly and efficiently when things are working well, can cause the effects of contagions or disruptions spreading with similar swiftness. Small crises can be overlaid onto global ones.
In a recent interview with the Financial Times, the CEO of Wizz Air József Váradi reported how the budget European airline had been affected by the Covid-19 pandemic, a disproportionate impact of conflicts in Gaza-Israel and Ukraine as it affected a significant number of its routes; high oil prices, and a product recall relating to an issue with turbofan engines. It was, said Mr Váradi, a case of ‘too many Black Swans’.
The economic world tends to behave as a single economic entity, rather than a collection of regional ones. Globalisation of business has led to competition, and competition often leads to consolidation, especially in commodities where margins are low. The economic world has become reliant on a smaller number of suppliers. They are typically larger and very efficiently run, but when there is a small number of supply routes, there are vulnerabilities should these be disrupted.
By 2022, a relatively high proportion of the world’s grain supplies originated in Ukraine, so when the conflict escalated in that year, prices surged, almost doubling between 2020 and 2022. Oil prices were even more volatile over a similar period, plunging to around $10 per barrel during the pandemic, and climbing to over $100 after the Russian invasion. There are winners and losers for each fluctuation, but an important dimension is the sheer unpredictability, and consequent difficulties for planners and managers either as purchasers or suppliers.
Products such as electric cars become more complex, with many components requiring a diverse array of raw materials, including rare metals, that have to be sourced from many different countries. The number, complexity and sensitivity of supply chains multiplies.
Chaos theory, sometimes referred to as the ‘butterfly effect’, described by the metaphor of a butterfly fluttering its wings in one continent ultimately leading to a tornado on another, is based on an understanding of the inherent unpredictability of highly complex, interconnected systems. In the past few decades, business planners and technologists have been assiduously making systems many times more complex, and interconnected.
In the case of supply chains, there have been moves to emphasize resilience as well as efficiency, to have better contingencies, rather than expect perfection, or at least a sense of order that in practice never occurs.
The world of finance is exceptionally interconnected and complex. In banking we see this every working week. The relaxation of capital controls, and the online interconnectedness of financial systems can result in better allocation of capital and greater opportunities when well managed – but also swifter and larger financial contagion when things go wrong.
The traditional understanding of a crisis as being a major event that occurs a handful of times in one’s managerial career is no longer the working experience for many executives. This turbulent new normal has implications for managerial education – also for self-management and self-care, given that a daily working experience of dealing with both micro and macro crises will take a personal toll.
Prime Minister Macmillan’s advice needs updating, 60 years on: ‘Events dear boy. And expect lots more of them.’
The author is a Qatari banker, with many years of experience in the banking sector in senior positions.
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