Risk Engineering: A Dynamic Capabilities Strategy for Managing the Unexpected Experimentally

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Warning: Risk is everywhere! Indeed, the world is becoming more turbulent and more volatile than ever before. The Global Risks Report 2017 from the World Economic Forum pinpoints several areas feeling the impact: geopolitical (think: failure of regional, national, and global governance), environmental (think: man-made environmental damage and disasters like oil spills or radioactive contamination), economical (think: asset bubbles in major economies or illicit trade), societal (think: social unrest), and technological (think: massive tech shifts). Although innovations in Big Data enable leaders to make predictions about society and business, they still get hit—again and again—by shocks and surprises. What’s more, Sen Chai and Willy Shih explain in an MIT Sloan Management Review article that, if truth be told, many leaders seem to reject data-driven research in favor of traditional methods.

Warning: Risk is everywhere! Indeed, the world is becoming more turbulent and more volatile than ever before. The Global Risks Report 2017  from the World Economic Forum pinpoints several areas feeling the impact: geopolitical (think: failure of regional, national, and global governance), environmental (think: man-made environmental damage and disasters like oil spills or radioactive contamination), economical (think: asset bubbles in major economies or illicit trade), societal (think: social unrest), and technological (think: massive tech shifts).  Although innovations in Big Data enable leaders to make predictions about society and business, they still get hit—again and again—by shocks and surprises. What’s more, Sen Chai and Willy Shih explain in an MIT Sloan Management Review article that, if truth be told, many leaders seem to reject data-driven research in favor of traditional methods. 

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No doubt, most classic strategic management methods can deal with predictable conditions and situations. These approaches can even—somewhat—attend to risk, yet they often fail to recognize growing uncertainty. That’s likely because risk and uncertainty are qualitatively distinct. According to several experts ( Courtney et al. 1997 , Teece & Leih 2016 , Teece et al. 2016 ), risk can be regarded as a choice among futures with known (conditional) probabilities, but uncertainty reminds us that we cannot really tell distant futures—not to mention their probabilities.

No doubt, most classic strategic management methods can deal with predictable conditions and situations. These approaches can even—somewhat—attend to risk, yet they often fail to recognize growing uncertainty. That’s likely because risk and uncertainty are qualitatively distinct. According to several experts (Courtney et al. 1997, Teece & Leih 2016, Teece et al. 2016), risk can be regarded as a choice among futures with known (conditional) probabilities, but uncertainty reminds us that we cannot really tell distant futures—not to mention their probabilities. 

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Notably, with risk, the unknowns are known; with uncertainty, the unknowns are unknown. In any event, managing the unexpected in a complex world is challenging ( Weick & Sutcliffe 2001 , 2007 , 2015 ). Still, it is doable—if executed methodologically, iteratively, and experimentally.

Notably, with risk, the unknowns are known; with uncertainty, the unknowns are unknown. In any event, managing the unexpected in a complex world is challenging (Weick & Sutcliffe 2001, 2007, 2015). Still, it is doable—if executed methodologically, iteratively, and experimentally.

Energizing, Redesigning, and Gelling: Dynamic Capabilities for Managing Unexpected Events

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Let’s take a closer look at how you can manage unpredicted, abrupt, and surprising events. Namely, you can apply a dynamic capabilities framework called Energize, Redesign, and Gel . (You can learn more about this framework in several of my published articles from 2015 , 2016 , and 2017 ).

Let’s take a closer look at how you can manage unpredicted, abrupt, and surprising events. Namely, you can apply a dynamic capabilities framework called Energize, Redesign, and Gel. (You can learn more about this framework in several of my published articles from 2015, 2016, and 2017). 

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Essentially, dynamic capabilities are critical to ensure and sustain high performance. In other words, they can help leaders better manage under risk and uncertainty. David J. Teece, Gary Pisano, and Amy Shuen explain in “ Dynamic Capabilities and Strategic Management ” that this is because such capabilities govern how the enterprise “integrates, builds, and reconfigures internal and external competences to address rapidly changing environments.”

Essentially, dynamic capabilities are critical to ensure and sustain high performance. In other words, they can help leaders better manage under risk and uncertainty. David J. Teece, Gary Pisano, and Amy Shuen explain in “Dynamic Capabilities and Strategic Management” that this is because such capabilities govern how the enterprise “integrates, builds, and reconfigures internal and external competences to address rapidly changing environments.” 

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Specifically, managing the unexpected in turbulent times requires three specific dynamic capabilities:

Specifically, managing the unexpected in turbulent times requires three specific dynamic capabilities:

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   energizing (remaining constantly active and fully alert)

   energizing (remaining constantly active and fully alert)

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   redesigning (employing design thinking)

   redesigning (employing design thinking)

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   gelling (applying super flexibility, continuous process improvement and monitoring, and organizational learning and unlearning).

   gelling (applying super flexibility, continuous process improvement and monitoring, and organizational learning and unlearning). 

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Here’s a deeper dive into each capability, as well as some example activities you can try.

Here’s a deeper dive into each capability, as well as some example activities you can try.   

ENERGIZE

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  Envisioning Possibilities. To contextualize opportunities and to envision strategic choices, transform available intel into images, metaphors, and analogies. You can also try experimenting with storyboarding and guided imagery.

  Envisioning Possibilities. To contextualize opportunities and to envision strategic choices, transform available intel into images, metaphors, and analogies. You can also try experimenting with storyboarding and guided imagery.

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  Journey Mapping. Driven by design and social research data, assess what stakeholders and other “players” really want and do. Map their experience, expectations, hopes, and dreams, as well as their struggles, pain points, frustrations and fears.

  Journey Mapping. Driven by design and social research data, assess what stakeholders and other “players” really want and do. Map their experience, expectations, hopes, and dreams, as well as their struggles, pain points, frustrations and fears.

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  Value Chain Research. Collaborate actively with both upstream and downstream partners to analyze the existing strategic clusters of activities and “dominant logics.” Also, review how to better leverage your unique capabilities and how to best co-create and sustain value for yourself and others. More importantly, don’t forget about scanning your own vulnerabilities.

  Value Chain Research. Collaborate actively with both upstream and downstream partners to analyze the existing strategic clusters of activities and “dominant logics.” Also, review how to better leverage your unique capabilities and how to best co-create and sustain value for yourself and others. More importantly, don’t forget about scanning your own vulnerabilities.

REDESIGN

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  Design Run . With an expert team, use design thinking to uncover likely scenarios and approach “wicked” problems by asking a lot of “what if” questions. Try to make better sense of situations by reviewing and identifying critical incidents, goals, and targets. Rough out solutions and puzzle out which solution(s) to prototype; for example, perform a heat map exercise. You can also employ rapid prototyping, which can make abstract ideas concrete and uses affordable loss calculation early and often. Finally, roll out plenty of trial runs—following a core axiom of design thinking to “fail fast to succeed sooner.”

  Design Run. With an expert team, use design thinking to uncover likely scenarios and approach “wicked” problems by asking a lot of “what if” questions. Try to make better sense of situations by reviewing and identifying critical incidents, goals, and targets. Rough out solutions and puzzle out which solution(s) to prototype; for example, perform a heat map exercise. You can also employ rapid prototyping, which can make abstract ideas concrete and uses affordable loss calculation early and often.  Finally, roll out plenty of trial runs—following a core axiom of design thinking to “fail fast to succeed sooner.”

GEL

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  Co-Creation. To fix the details of the concepts and scenarios you’ve been working on, invite as many end-users as possible to co-creation sessions. By doing so, you will gain deeper insights, and their critical feedback will enrich your concept.

  Co-Creation. To fix the details of the concepts and scenarios you’ve been working on, invite as many end-users as possible to co-creation sessions. By doing so, you will gain deeper insights, and their critical feedback will enrich your concept.

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  Experiment Launch. To test remaining critical assumptions (and to see if your strategy and protocols work), use a learning launch before final rollout. Basically, let others experience your working strategy, and then learn together—continuously. Look for patterns, and go back to the… future. By continuing to update and rerun the cycle, you can help reduce the unknowns.

  Experiment Launch. To test remaining critical assumptions (and to see if your strategy and protocols work), use a learning launch before final rollout. Basically, let others experience your working strategy, and then learn together—continuously. Look for patterns, and go back to the… future. By continuing to update and rerun the cycle, you can help reduce the unknowns. 

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These dynamic capabilities can simultaneously serve to creatively embrace, as well as strategically mitigate, risk and uncertainty. In reality, fostering such innovative “risk/uncertainty-ready” cultures of managing the unexpected experimentally is a vital act of positive organizing. Here’s the good news: Any leader or organization can develop these dynamic capabilities for managing the unexpected.

These dynamic capabilities can simultaneously serve to creatively embrace, as well as strategically mitigate, risk and uncertainty. In reality, fostering such innovative “risk/uncertainty-ready” cultures of managing the unexpected experimentally is a vital act of positive organizing. Here’s the good news: Any leader or organization can develop these dynamic capabilities for managing the unexpected. 

Take-Away Message

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High risk and high effectiveness can coexist. Risk engineering should be a proactive and iterative process that prepares leaders for surprises. The goal is to attack potential problems before they arise—and before they become large crises or escalate into total catastrophes. It also means maximizing the positive outcome of risk: opportunity. Bottom line: Don’t mismanage unexpected events, instead experiment in the unexpected!

High risk and high effectiveness can coexist. Risk engineering should be a proactive and iterative process that prepares leaders for surprises. The goal is to attack potential problems before they arise—and before they become large crises or escalate into total catastrophes. It also means maximizing the positive outcome of risk: opportunity. Bottom line: Don’t mismanage unexpected events, instead experiment in the unexpected!