Strategy: How Organizations help us Manage Uncertainty into Risks

At a recent meeting with a client I made the proposition that: Operational Management deals primarily with the risks facing the the organization and Strategic Management deals with the organization’s uncertainties. This proposition engendered considerable interest and discussion and I was invited to elaborate further. This post highlights some of what I covered.

The notion of uncertainty and risk (U&R) is a classical one: The risk cube with the dimensions of event significance, exposure due to presence/lack of mitigation, and likelihood of occurrence. Risk is the situation where we have strong knowledge and understanding along all three dimensions. To the degree that we are missing knowledge and/or understanding we are moving into the realm of uncertainty. The ultimate form of uncertainty is when we are oblivious to the event even occurring (Black Swans).

Organizations illustrate two core choices:

  • What it is they are about – the strategy, the job to be done, purpose, etc.
  • Where they draw a line about what’s in and what’s out – what will be focussed on, paid attention to, ignored.

What will be focussed on becomes the operational face to a strategy’s priorities. Once this is determined the questions that are dwelt upon include:

  • How best to accomplish our priorities? what organizational form(s), capital, processes, talent, etc. These are input type decisions.
  • How best to determine and maintain necessary coordination and control so our efforts (throughputs) materialize into desired outputs/results.
  • How do we determine that our outputs are giving us the ROI and benefits (outcomes).

In the main we accomplish this through measurement. Measurement is intended to provide us with the most useful of information to enable us to adjust what we do as go along. Using the PDCA concept measurement is the C (check) that enables us to A (adjust/act accordingly). These are all operational concerns in terms of management focus.

Hence applicable measurement translates what would otherwise be circumstances of uncertainty into risk like ones. Measurements that are useful will also give us an indication of where we are heading if we do nothing different. Of course useful measures include ones that tell us how well we have so far.

The fact that adjustments are a normal expectation indicate that our operational systems can encounter various forms of variability. Measurements enable us to know when variability is leading to unacceptable performance and also give us insight into what we can do to correct the situation. Notice how these two aspects of measurement information align to the dimensions of significance (i.e., an event is possibly going to occur, its likelihood of occurrence, and the value of remedial action).

So applicable measurements move from acting within areas of uncertainty and enable us to treat them as risk like situations.

Measurement is an interesting and complex subject in its own right. But in the field of OD it seems be of nominal interest. In parallel, the field of OD does not seem to show much application sophistication on dealing with U&R. Perhaps, in part the two are related.

Measurement is the act of getting useful information to answer two questions:

  1. Did we get value for our investment/efforts? An example is, “Did we get value from our investment in our latest leadership development program?” I am not sure where the state-of-the-art is with these kinds of measures in OD work, but last time I looked there was considerable discussion, especially in the areas of training and development.
  2. Are we on track to getting to where we want to get? This is the field of leading indicator measurements. For me, these are the measurements that enable us to remove some uncertainty out of our lives and enable us to manage it/them as risk situations. Here again, I would be pleased to hear that the OD field is showing useful insight into how to do this well.

It is useful to remember that in many cases the most useful leading indicator measures are ones that prompt us to look more closely at a potential issue. Hence they do not need an attribute of much precision.

Rather than precision, we need such measures to have respect: We will respond with attentiveness if we get these (specific) indications from this leading indicator.

It is the followup act of attentiveness that gives us the information of significance and likelihood in time to act upon what we have learned. Hence leading indicators are a form of BFs (bring forwards) that are not triggered by time but by emerging circumstances.

Organizations complement what and how we measure things of importance and interest by the very nature of how they focus peoples’ attention and energies during work. Business functions, processes, etc. allow us to identify what competencies are useful. To situate them into those areas that these competencies can be applied. To reward them for paying attention to their areas of accountability.

So one way we can assess organizational effectiveness (current and future) is to assess how the form we are considering will aide in managing the applicable uncertainties into “hand-able” risks. One could be tempted to consider this “JOB ONE” for organizational design.


About 123stilllearning456

As a management consultant I am passionately interested in talent management and risk/uncertainty issues. In the area of talent management I propose that we seek strategies that look beyond the staffing/employee centric frames of reference. I have been frustrated at the "closing down on possibilities" by these more conventional staffing/employee centric approaches. I have been impressed where people have found systematic solutions to their talent management issues by going beyond the conventional approaches. In the area of risk and uncertainty, I am interested in making this topic relevant to more normal decision making situations. My conceptual foundation is to use the micro-economist's fixed/variable cost theme. I also think it is important to look at these issues for people through their emotional and psychological lens. As a premise I think risk and uncertainty only exist where there is a person who cares about possible events and its consequences. Hence, risk and uncertainty are social based concepts (no sentience, no risk and uncertainty). A major influence on my thinking in this area is Nassim Taleb of "Black Swan" fame. This BLOG provides me with an opportunity to express my thoughts on topics that interest me. As this is an online diary, content is more important to me than polish. I apologize if this distracts from readers' enjoyment and learning. Still I find this a useful way to live up to my namesake, learn more from others and hopefully provoke creative thoughts and ideas in others.
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