Seek Out Strategic Opportunity-Risk, Even in “Worst Recession Since the Great Depression”
Is it any surprise that the IMF just forecasted the “worst recession since the Great Depression, surpassing that seen during the financial crisis a decade ago”? Of course not. And yet, with two feet planted firmly on the ground, we can say it confidently: opportunities have not evaporated from the planet Earth.
No matter what happens, there will be individuals, organizations, even whole nations that emerge from the pandemic with stories of growth, milestones achieved, goals realized. That’s because opportunities don’t exist without risk. And risks don’t exist without opportunities.
“Strategic opportunity-risk” (SOR) is our term for a set of conditions that contains danger as well as the potential to generate value. A SOR is a double-sided coin, embedding both risks to manage and opportunities to seize. Like the saying goes, “no risk, no reward.”
We wrote about this, of course, in Disrupted, the book we’ve been sharing passages from over the last while. And today, the IMF’s dire forecast feels like an appropriate topic to unpack under the lens of SOR.
Digging a little deeper into the IMF’s modeling, we find something interesting right away. Which is that this historic recession isn’t exactly going to unfold in a uniform fashion across the globe. Indeed, its impacts are going to be quite asymmetrical.
We are looking at a 3% reduction in world economic output in 2020, in a “best case scenario”, and a 6% reduction in a less favourable case. But some countries will bear a greater brunt of this slowdown than others. The US, for example, is projected to contract just under 6% in the IMF’s best-case scenario.
Source: Guardian graphic, overview of World Economic Outlook projections.
But there are two countries that will not shrink in 2020. India and China.
The IMF believes that China will still see modest growth of 1.2% in 2020. Then, in 2021, it is poised to grow by 9.2%, double what is anticipated for other “advanced economies” in Europe and North America. The IMF credits these outcomes to the relatively fast snuffing of COVID-19 in China and significant fiscal and monetary stimulus from its government.
Could this pandemic be the double-sided coin that finally, conclusively sends China way ahead of the global pack? Just as World War II marked the United States’ emergence as an untouchable world leader, will COVID-19 be China’s pivotal moment?
If so, what SORs are embedded into relations with this burgeoning world power—economically, politically, socially, culturally? When you peer into the conditions surrounding China’s experience with COVID-19, what patterns do you see? How do these patterns relate to what you or your organization is doing?
Look, it very much bears saying that a recession on the level of the Great Depression isn’t an occasion to cheer and shout about. Many will suffer. We ourselves feel the uncertainty and fear.
But we also feel something else, because we’re in the habit of doing so. We feel curiosity and cautious optimism. Because we know that as bad as things appear to be, there is never a time when opportunity vanishes from the earth. And those who are trained to see SORs can also learn to pursue them.
In all of this upheaval, what opportunities can you see?
Larry and David
Defining Strategic Opportunity-Risk
A Strategic Opportunity-Risk is a set of conditions providing for both progress and exposure to danger that will strategically position an organization to generate sustainable value. Let’s break this down.
Emerging from Conditions
First, we look to conditions to find SORs. The immediate and emergent factors playing out at the micro, macro, and mega levels provide the substance of SORs. SORs are like the constellations we can perceive in a sky full of stars. When you take the time to map out your conditions and contemplate how they might connect, these shapes can sometimes stand out very clearly and suddenly, the way they did for Abby Harris and her team in Chapter 3.
Risk and Opportunity: Two Sides of a Single Coin
Next, a SOR provides both the potential for progress and exposure to danger. Remember when we encouraged you to break the habit of judging conditions as good or bad? This is where non-judgment really comes into play. As much as we all might enjoy the idea of a cut-and-dried reality, a world of villains and heroes, if you persist in seeing conditions this way, you’re choosing to cloud your strategic vision. And the reality is this: any opportunity embeds a certain level of risk, and any risk embeds a certain level of opportunity. The two are inseparable, like the two sides of a single coin. One person’s opportunity is always another person’s risk. Even in a disruptive environment. If Kodak perceived digital imaging technology as a profound risk, Apple perceived it as a tremendous opportunity.
For this reason, we choose to combine “opportunity” and “risk” into a single term, “opportunity-risk”. It helps us to remember we are always simultaneously leveraging a certain level of opportunity and managing or mitigating a certain level of risk when we pick a target and begin moving towards it. This prevents us from being either too Pollyanna-ish or too fearful. Risk-fixation can turn you into a Kodak, but it’s also entirely possible to be so convinced that an opportunity is a surefire winner that you fail to prepare yourself for the inevitable hazards you will encounter en route to collecting your winnings. When you keep opportunity and risk in focus, you give yourself the best chance of generating sustainable value inside of a particular set of conditions.
Active Pursuit of SORs Generates Sustainable Value
Next, the point of all of this is to generate sustainable value. Note that we take pains to say “sustainable” value. In 1975, when Kodak’s Steve Sasson invented the digital camera, Kodak was generating tremendous value. But much of this value was ultimately unsustainable, given emergent conditions. While other companies invested heavily into “filmless photography” that began as a Kodak innovation, Kodak was quite happy to continue gobbling up market share as a film-and-camera company. After all, there was plenty of market share to go around at that time. They looked at their digital innovation through black-and-white glasses and perceived only danger. They saw the coin of SOR spinning through the air and only noticed one side. They slotted digital into the “bad” file and set themselves firmly against it.
For a long time, their market dominance seemed to vindicate their approach. They were an American institution. They seemed “too big to fail.” In fact in 1999, two years after Apple entreated us all to “Think Different”, Kodak’s stock prices were higher than they had ever been, with shares priced at nearly $80 USD. Kodak looked good but their value was rotting from the inside, as decayed as those Collateralized Debt Obligations were in the sub-prime heyday.
In other words, Kodak was the very picture of M.A.D. They lost the ability to generate sustainable value and eventually it showed.
You Must Actively Pursue SORs
The failure to actively pursue the right SORs results in going slowly but surely M.A.D. When you try to shove an SOR into the closet, like Kodak did with Sasson’s camera, it doesn’t stay put. It reappears as an immense problem, a punch that knocks you sideways. You are not able to generate sustainable value as a static entity that invests only into its own maintenance. Like a surfer, you must constantly maneuver yourself into the right wave at the right moment. If you wait, drop your anchor, and try to “sit out” exponential change, you will experience the fully expressed destructive potential of its wave. What does it feel like to have the future hammering down on you from above?
Move forward. You don’t have a choice.
Both continuity and discontinuity mean generating value despite—or because of—shifts in conditions. Your own experience of this depends on your ability to make out the shape of SORs in your immediate and emergent conditions and then to orient yourself towards the right ones. After all, the state of generating sustainable value is the opposite of M.A.D.
A Series of Insights from Disrupted, the Book
Written in 2015, Disrupted was, and still is, both a book ahead of its time, and a timely guide for those committed to understanding and addressing the complexity of disruptive change, preparing for disruption, and critically, leveraging disruption to generate sustainable value.
This series of articles are extracts — some with comment from the authors — from the book and are intended to highlight some of the key concepts captured in Disrupted.
“Few people genuinely understand systemic disruption. So having a practical guide to advise on strategies for leveraging new possibilities is highly valuable. I read about 150 books a year. But Disrupted: Strategy for Exponential Change is a book that I have sitting on my desk all the time — ready for constant referral.” Richard Hames — Executive Director, Centre for the Future
To find out more visit: www.resilientfutures.com/disrupted
