Dynamic Risk Equilibrium – The Next Wave

The term ‘VUCA’, made popular by the United States military in the late 1990s and now adopted by business schools all over the world, shows the criticality of dynamic thinking and action. VUCA stands for volatility, uncertainty, complexity and ambiguity. It highlights the key underlying factors that everyone faces in everyday decision making in the modern age. This also makes sense from a sociocultural evolutionary perspective because VUCA encapsulates the human ancestral nature for adapting to novelty and to change itself (Potts, 1998).

Research in the field of brain science has shown the human brain is designed to:

  1. Solve problems relating to survival in an unstable environment.
  2. Do so in almost constant motion (Medina, 2014).

However, much to the detriment of workplace health, there is a gap between what science knows and what businesses do. This has become increasingly evident through the upward trend in stress and mental health issues and downward trend in productivity. Business leaders and strategy professionals who used to be fixated with the ‘critical’ need for the three to five year and longer strategic plan that factored all variables and strived to minimise uncertainty so that results could be guaranteed now face frustration due to a VUCA reality. Since Michael Porter’s groundbreaking work in the 1980s, workers have become adept at developing strategy but unfortunately, as most experienced leaders know, they are not nearly as good at executing it. This has to do with the persistent myth that good execution means always sticking to a plan. It has been well documented that organisations spend huge amounts of time and energy mapping out who should do what and with what resources (Sull et al, 2015). But they cannot anticipate every event. In volatile markets, managers and employees need to be agile and that is not easy. Issues such as digital disruption, technological integration, globalisation and numerous other variables continuously prove that long-term, unbending plans serve as a great starting point, but if they are not structured with inbuilt flexibility they usually never work.

Based on this it would seem simple enough to focus planning on shorter term cycles and have inbuilt flexibility. However, modern age humans struggle for stability and continuity and resist change, so this is much easier said than done. It is at this point it makes sense to ask why there is resistance to change from a human psychological point of view; however, organisations rarely do. Leading risk professionals know that to succeed, business and cultural change must be viewed from a human psychology perspective. It takes organisational attributes such as agility and resilience to be able to adapt planning as required to achieve objectives, or even to be wise enough to know when objectives should change. This presents the next issue – every industry sector can now be seen starting to add these catchy buzz words: “let’s be agile, let’s be resilient and because we said we are it has now happened!” Or has it…

Since organisations are comprised of groups of people, the facets of group interaction combined with the individual attributes of the people who make up these groups is where the disjoin seems to lie. People do not just become agile and resilient because a mission statement is changed and catchy posters are put up around the office. In fact, if one looks at the core connects behind these two attributes from a definitional perspective, the complexity in assuming that people just get it can be seen:

  • Resilience – the ability to bounce back and exhibit toughness.
  • Agility – the ability to change course and direction quickly and effectively.

It needs to be acknowledged that everyone has different natural abilities in these two aspects, but obviously these can be improved and developed over time with the right focus and intent. So, how is this done? With focus on several aspects:

  1. People need to be taught situational awareness – if they cannot be present and orientate, how can they know how to bounce back or where to move to?
  2. It is necessary to embrace the whole-of-person approach – flexible work structures and changing trends mean people cannot be controlled based on ‘when they are in our buildings’ any more. People need to be educated and empowered with the skills to apply ongoing personal development and decision-making skills (Bernstein et al, 2016).
  3. Mindfulness needs to be developed so that people are present when they need to be (Csikszentmihalyi, 1990) – this has never been harder in a world of constant communications and distractions. How many readers want to check emails or look on social media while reading this article?
  4. People need to be taught to understand themselves so that they can mitigate the realities of cognitive and heuristics biases that everyone has, and that impact decision making and performance (Ariely, 2008).
  5. Enhanced understanding of others and empathy need to be taught so that people can try and understand each other better and play to each other’s strengths (Cuddy et al, 2013) to achieve workplace harmony and organisational objectives.

Only when the above has been achieved can businesses begin to start expecting their people to translate the relevant skills and attributes into the workplace, and develop the ability to be organisationally agile and resilient. Of course, it would be remiss to ignore the importance of systems and processes but, in the end, it is people that have to use and apply these systems and processes, so if the people part is not right, the system and process is bound to fail. In order to drive this, a focused cultural and behavioural change approach is needed, which usually takes around three to five years to be successful in most organisations. This is where strategic planning and long-term vision become critical.

The output of all of this is to strive to create what is referred to as a dynamic risk equilibrium (DRE), which is the ability to innovate and adapt, to take calculated and educated risks so that opportunities can be seized. It means that risk baselines can be adjusted to match the environment and people, based on the opportunities and threats that have to be managed. If DRE cannot be achieved, people will constantly lose opportunities, fail to innovate and live in a risk-averse world where they will steadily see themselves and their organisations become obsolete. The challenge is to apply the embedded approach to risk leadership in everyday life at all levels of organisations so that risk truly becomes opportunity and not just another compliance and governance activity that the business ‘has to do’.

The importance of cultivating DRE is reinforced when attention is focused towards how today’s workforce is faced with increasingly complex environments, as well as psychological and physical demands that stem from a fast-paced and volatile economy. A paper from Harvard Business School on building a resilient workplace culture highlights the particularly harsh toll on mental health with workplace stress and workforce disengagement (Everly, 2011). In fact, a 2012 Towers Watson study found that in most organisations, only 35 percent of employees said they were engaged. In other words, 65 percent of employees have mentally checked out, causing productivity, innovation and creativity to plummet. The study also found that 38 percent of employees felt stress and anxiety about the future, and that less than half of the employees surveyed agreed that senior leaders had a sincere interest in their wellbeing (Towers Watson staff, 2012).

In most cases, when viewed through the lens of DRE, the structure of the modern organisation has not put the person at the heart of business activities. Dr John Medina, a developmental molecular biologist and author of Brain Rules, has clearly highlighted that stress impacts people’s ability to perform in business (Medina, 2008). There is a growing recognition that good mental health at work is a must, not a nice to have. This is not simply altruistic, because of the upward trend, mental ill health is a main cause of absenteeism. In fact, the growing recognition that performance and engagement can be affected by a worker’s state of mind is now becoming well understood. Neuroscience proposes the brain is organised to minimise threat and maximise reward (Rock, 2008). Meaning, every person’s brain constantly scans the environment for perceived threats, which leads to the acknowledgement that high performing workplaces are a by-product of two distinct forces that mutually influence one another. These forces are positive organisations (or environment and culture) and positive individuals, based on mindset and behaviours. It is accepted that it is the mindset of an individual that determines their high levels of productivity, profitability, engagement, innovation and quality of life (Kabat-Zinn, 1993). This is a double-edged sword:  individual resilience can be developed through training the person to focus on their thoughts and feelings and examine their actions and responses, but resilience and agility can be either assisted or disturbed by the environment in which the individual finds themself.

So what is it that makes some organisations able to not only survive but also thrive in the face of adversity? This is the challenge the authors seek to solve through research supporting DRE that highly functional organisations are those who operate not as a transactional network, but as an evolved social network. Failed organisations tend to ignore the people dimension, treating the human resource as simply cogs in the machine, which inevitably results in the loss of those resources. The leaders of industry are those who view their human assets as exactly that: an asset to be maximised, a potential to be utilised and an investment for return. The higher valued, higher trained, higher engaged the workforce, the greater return on the investment. Dynamic risk equilibrium is thus the output of a strategic and tactical balance between people and process that is constantly evolving.

For a full list of references, email info@interactivemediasolutions.com.au

Dr Gav Schneider is an acknowledged leader in the field of human-based risk management and the psychology of risk. He is a leading academic in his field and heads up the Postgraduate Psychology of Risk program at the Australian Catholic University (ACU). Dr Gav is the CEO of the Risk 2 Solution group of companies, which focus on delivering innovative and cutting-edge solutions in the risk, intelligence, safety, security, medical and emergency response sectors. Visit www.risk2solution.com for more information.

Kate Down is a behavioural scientist and coach who specialises in social and emotional intelligence and rational thinking. Kate heads up Risk 2 Solution’s: People, Culture and Behavioural change division. She is an Associate Member of the Australian Psychological Society and a lecturer on ACU’s innovative Postgraduate Psychology of Risk program.

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Gav Schneider
Dr Gav Schneider is an acknowledged leader in the field of human-based risk management and the psychology of risk. He is a leading academic in his field and heads up the Postgraduate Psychology of Risk program at the Australian Catholic University (ACU). Dr Gav is the CEO of the Risk 2 Solution group of companies, which focus on delivering innovative and cutting-edge solutions in the risk, intelligence, safety, security, medical and emergency response sectors. Visit www.risk2solution.com for more information.