I do not like to bring this up on the dawning of the New
Year (it's barely Jan. 5 here in Brooklyn) but a serious challenge for
2009 will be our willingness to think the unthinkable in realistic and
creative terms, and act on our convictions despite all the uncertainties.
No one is suggesting this will be easy.
I woke a little before 3 a.m. thinking about a client who did not call
me back last year after I led a session with a roomful of his clients.
They were mostly CEOs in the information industry in whose companies his
firm holds significant private equity stakes. I had been retained to stimulate
them to "think the unthinkable" about their businesses for a
couple of hours before their "real" meeting began.
It was early October in '08. The "unthinkables" were mounting:
AIG's bailout, Wachovia, Lehman gone bust, Bear Stearns, Fannie Mae, Freddie
Mac, to name a few, with WaMu then the largest US bank failure ever. Reserve
Primary had "broken the buck" and people were beginning to wonder,
as investors pulled $130 billion from US money markets in two days, well,
where is a "safe" place to store cash?
Still, interest rates had not yet dropped nearly to zero and Bernie Madoff
was not yet a worldwide household name. I can't detail the precise totals
of new currency printed by the US government since the crisis began to
unfold, but please note: it took two centuries for US monetary base to
grow to $800 billion and in the last three months it has nearly doubled
to $1.5 trillion - an implied annual expansion rate of 300%. This fact
alone sets in motion its own new set of uncertainties.
These musings led me to recall another meeting in the spring of 2006, in
which a convocation of managing directors from one of the Top Five
global financial institutions wrestled for two days with two major uncertainties
likely to influence their business – would the US-China dynamic as the
primary engine of global growth remain positive and healthy, or decline
in serious ways? Would the US capital markets model (political, economic,
regulatory) remain dominant in globalization, or come under attack, and
perhaps decline seriously? A cursory look at the matrix implied here quickly
revealed the dreaded "lower left quadrant" scenario, where a
deteriorating global growth dynamic would converge with slippage of US
influence in the world. What might happen to them in that world?
(Sound familiar?)
The MDs quickly evidenced antipathy for the matrix and the process of thinking
through its implications, perhaps because their business model – and their
livelihoods – would become quite unpleasant (if not untenable) in at least
two of the scenarios implied (particularly the one that has in fact developed,
in which numbers of them have lost their jobs.) This is not surprising
in one sense, since the most unthinkable circumstances are often those
in which we won't do very well. In psychology this is often referred
to as denial.
What I watched unfold among these bankers when faced with this particular
scenario framework was a two-step cognitive process. The first step
involved an intense interrogation of the "rightness" of the framework.
Were these really the key macro uncertainties? Once the framework
had been explored and discussed, the second step involved painful deliberations
about whether this thinking process, if pursued, could possibly suggest
prudent actions. While the discussion was eventually allowed to proceed,
general resistance managed to preserve the bubble of group think. Whatever
else might be true, they were not willing to take these possibilities
seriously. This particular crowd of leaders could not, or would
not, look down into the dark possibilities that were clearly latent in
the world system. I left the meeting thinking about reasons to short their
stock, which has fallen about 65% since that day – one of the truly valuable
investment insights never expressed openly (til now) and not acted upon.
(Was I, too, in denial?)
Since then, several different versions of these scenarios have been broadly
used by various practitioners to encourage executives to think "outside
the box" of their own official futures in 2008-10. Not all are equally
capable or willing to take this on, useful as it may be.
I am trying to get at something here, which came up again
in a very recent meeting with a group of bankers from another top-tier
institution, charged with expanding capital markets businesses. The most
senior and outspoken member of the group asserted that the firm had excellent
plans in place that "just needed execution!" I asked politely
whether it was more important to prosecute those plans or - given how different
the world had become in recent months - try to figure out what in their
operations had to be radically different? What did they need to stop
doing, or start doing, that would amount to real change in behavior?
This question provoked uncomfortable silence, but several of the people
at the table nodded in a way that suggested they might proceed down this
path if enough of them dared to do it.
In any engagement of this kind, we may struggle to find exactly the right
set of uncertainties, but I do not see how most businesses can proceed
in 2009 without aggressively addressing this question: Given that things
have become so different from what we imagined, and unprecedented in ways
likely to become more so - don't we need to radically rethink the assumptions
under which we have been operating? Now?
This is the challenge many of us face in this New Year. "New"
arrives with a capital N in more ways than anyone bargained for. It demands
more new thinking – and new acting – than in any recent times past. I
suspect that many people remain unprepared for the efforts involved, but
the refusal to think about radical change is almost certainly not the answer.
The best we can do is to begin.