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Under uncertainty, should an enterprise develop or survive?

  The current complex and ever-changing market environment tests the ability of companies to manage uncertainty. Enterprises need to maintain sufficient adaptability and flexibility in order to resist the various changes in the market.
Uncertainty Strategies

  Economist Frank Knight (Frank Knight) divided uncertainty (uncertainty) into three grades: risk, ambiguity, true uncertainty.
  1. Risk (Risk), the probability is known. For example, 5 red balls and 5 white balls are placed in a jar, and the probability of catching a red ball.
  2. Ambiguity, difficult to predict. For example, there are 5 red balls in the jar, but the number of white balls is unknown, and the probability of catching the red balls is difficult to calculate.
  3. True Uncertainty, unpredictable. If the number of red balls is unknown, the number of balls of other colors is also unknown.
  Hugh Courtney, a former McKinsey consultant and current business school professor, divided the uncertainty of environmental change into four levels:
  the first level is equivalent to the risk in the above classification by Knight, the second and third levels are equivalent For ambiguity, the fourth level corresponds to true uncertainty. Personally, I think that the analytical method he proposes is useful in the face of different levels of uncertainty.
  Level 1: A clear-enough future, analytical tools such as market research, Michael Porter (competitive strategy) models are basically useful.
  The second level: alternate futures with various possibilities. Analysis methods such as scenario analysis or scenario planning are basically useful.
  The third level: a range of futures, because there are too many possibilities, so the scenario analysis method is not enough, and we have to find the most likely ones from a variety of possibilities , thus reducing the third level to the second level.
  Level 4: True ambiguity, rational analysis is basically useless, only intuition.
  Coney estimates that at least half of the environmental changes that companies face are in the second and third tiers, and the rest are basically the first tiers.
  He believes that there are generally two mistakes at the helm of an enterprise: 1. Treating the uncertainty of the second and third levels as the first level is equivalent to underestimating the uncertainty; 2. Treating the second and third levels of uncertainty as the first level; The uncertainty is regarded as the fourth level, which is equivalent to overestimating the risk.

  In the face of uncertainty, plans are more or less of a “gambling” nature. Coney gives three ways to place bets: no-regrets moves, options, and big bets.
  Safe betting means that no matter what happens, you win. This will definitely require more resources.
  Focused betting means that there are big wins in some scenarios and small losses in others.
  Going all-or-nothing means winning big in a few scenarios and losing in others.
  These three ways of betting do not correspond to different levels of uncertainty, which greatly reduces the practical value of Coney’s theory.
  Arie de Geus, a management guru who specializes in long-lived companies, found that those companies that survive for a long time can quickly switch between growth mode and survival mode in the face of changes in the environment.
  Growth model: Find ways to expand, long-term goals over short-term goals.
  Survival mode: cut costs, lay off employees, ensure cash flow… Short-term goals are more important than long-term goals (but have long-term goals in mind).
  I like to take Airbnb’s performance before and after the pandemic as an example of a company’s “beautiful” switching between growth mode and survival mode.
  Airbnb was listed in December 2020. At that time, the situation was: In March 2020, the world was facing the outbreak of the new crown epidemic, Airbnb lost more than half of its revenue, and the company quickly shifted to survival mode: in May, layoffs 1/ 4. Four “gives” for laid-off employees: giving shares, giving money, giving reemployment support and medical insurance, and giving psychological support. What Wall Street sees is whether it can “self-government” and adapt in a crisis, and what employees see is whether it is warm to people. Ultimately, the Airbnb IPO was a huge success.
  Today, the panic about the new crown in Europe and the United States has been greatly reduced, and Airbnb has quickly shifted into development mode. In January 2022, Brian Chesky, co-founder and CEO of Airbnb, made a judgment on the travel trend in the post-epidemic era: People’s mentality has changed, and vacation rentals prefer to stay in less people. , Live longer in places with good natural scenery. In response to this change in demand, the company has launched a series of new service forms. For example, the new option “flexible match” uses a new algorithm to surprise users in search results: more expensive and better recommendations.

  In Q1 2022, Airbnb’s revenue increased by 5% compared to the same period last year, and compared with the previous quarter’s revenue decline of 22%, which means that the inflection point is coming. Because of switching to the development model, the company’s investment will increase (lending and expansion of recruitment), in fact, the loss in the first quarter is three times that of the same period last year.
  At present, China’s business environment is still facing uncertainties such as the epidemic and the turbulent international environment. Under uncertainty, the most urgent decision for the helm of a company is: enter development mode or survival mode? In the face of the epidemic, Amazon entered development mode and made a lot of money; Airbnb entered survival mode and successfully went public. So, in the face of the uncertainty of the domestic business environment, what should your company do?
bipolar

  As a leadership coach and management consultant, I have the opportunity to observe entrepreneurs closely for a long time, and I have found that optimism and self-confidence are the most important steps to start a business. To survive in the wind and waves, you need to have a sense of urgency. In personality, people with a perfect balance of optimism, self-confidence and anxiety are more likely to survive uncertainty.
  Even if there is no perfect balance between optimism and self-confidence and a sense of urgency, as long as there is both, it is fine. Years ago, in my article “Leadership and Psychopathy,” I quoted a psychiatrist:
  Nassir Ghaemi, a psychiatrist, argues that bipolar disorder A good leader quality in a crisis. The characteristics of this kind of mental symptoms are: during the depressive period, the feelings of others are particularly sensitive, and the cognition of things is particularly objective; during the manic period, there is a great tolerance for setbacks, and there is problem-solving creativity.

  He cited Winston Churchill and Mahatma Gandhi as examples, two heavyweight political leaders who, according to their own accounts, were diagnosed with bipolar disorder. (See his monograph “A First-Rate Madness”).
  What I want to ask Gerhaimi is: what to do when you should be depressed when you are manic, and when you should be manic, you are depressed?
Perception and reaction speed

  In addition to the two personality traits of optimism and self-confidence and sense of urgency, coping with uncertainty also requires a more important organizational characteristic: the perception and response speed of environmental changes, or the agility of the organization.
  Ali De Hess believes that in the face of uncertainty, it is not important to make a plan, but to accelerate the learning ability of the organization. Don’t misunderstand the word “learning” here. In psychology and organizational behavior, learning is not the same as what we call learning every day.
  Learning is cognitive and behavioral change. De Hess found that long-lived companies were better at learning than their competitors—they were quicker to perceive new signs of environmental change, to pick up on their implications, to confirm their assumptions, and to react more quickly. As an individual, perception is fast, but as an organization, perception is much slower than an individual.
  In my opinion, there are 3 ways to improve the perception and reaction speed of an organization:
  1. Improve trend judgment
  Human beings are not intelligent enough to foresee the future, and it is even more difficult to foresee the future than to create it. So some people, like Musk, simply go and create the future.
  Predicting the future is difficult, and judging trends is an essential skill. When judging trends, those at the helm of the company should trust themselves, not experts.
  Neil Ferguson, a notorious professor of mathematics and epidemiology at Imperial College London, often makes overly pessimistic predictions. His predictions about the death toll from the coronavirus were wildly wrong. When the new crown epidemic first broke out, he predicted that 500,000 people would die in the UK, seriously misleading the government’s decision-making. On July 19, 2021, the United Kingdom was lifted from the blockade. He predicted that 100,000 to 200,000 people would be infected with the new crown every day. The fact is that the number of new crown infections in the United Kingdom is about 20,000 a day.
  Ferguson’s predictions are consistently inaccurate. In 2005, he predicted that 200 million people would die from bird flu, which resulted in 282 deaths; in 2009, he predicted that 65,000 people would die from swine flu in the UK, resulting in 457 deaths from swine flu.
  The future that has come is the trend, and judging the trend is especially important for startups. Sometimes a mistake made by the “top leader” may result in painful losses for the company. Haidilao is an example: the helmsman made an overly optimistic judgment on the trend, so he quickly opened a store, resulting in serious losses, and finally had to close the store on a large scale.
  Judgment consists of two parts: summarizing ability (fluid intelligence) and knowledge-experience structure (crystallized intelligence). Fluid intelligence is difficult to improve, but crystallized intelligence is easy to improve. There are three ways to improve it:
  First, better information channels.
  A bad information channel is equivalent to “Garbage In Garbage Out” (garbage input, garbage output), because the input information is garbage information, so the decision must be a garbage decision with a high probability.
  Second, make good use of counselors.
  Uncertainty is both objective and subjective. The same environment may be the fourth-level uncertainty for Zhang San and the first-level uncertainty for Li Si, so Li Si can be Zhang San’s advisor. Everyone has areas they don’t understand, but it’s not scary to not understand. What I’m afraid of is that you know you don’t understand, but you don’t consult people who really understand.

  Third, pay attention to the biggest driving factor of environmental change: the PEST model (Political, Economic, Social, and Technological). These four diamonds determine which scenario will be in the future.
  It is not necessary to purchase the wisdom of McKinsey and BCG (Boston Consulting Group) with a lot of money, and there are also advisers in their own companies. If your senior leadership team is good enough, they must be experts in their fields. In the face of uncertainty, one’s brain is not enough, so we must use collective wisdom.
  Many companies have senior managers, but they are not the leadership team in the true sense, but senior secretaries who follow the instructions of the boss. These people take the money of the executives and do the work of secretaries, and the boss is the one who suffers, and the reason for this miserable lack of leadership lies in the boss himself.
  2. Organizationalization
  Organizational behavior studies have found that the collective can produce wisdom and ignorance. Wisdom or ignorance in the end depends on the organizational structure, system, process, and even more on the organizational culture.
  Tissues perceive and respond much slower than individuals, because individuals are organisms with sensory organs and nervous systems. Organizations are not organisms, and the less smooth the communication within the organization, the slower the perception and reaction speed.
  The way to organize organically is to open up upward, downward, and parallel communication channels. The upward communication channel from the antennae to the central nervous system determines the speed of perception, and the downward communication channel from the central nervous system to the limb determines the speed of reaction.
  A rigid enterprise has many drawbacks:
  (1) Those at the helm can only hear good things, and everyone reports good news but not bad news, resulting in slow decision-making; (2) Ineffective action, discounting from top to bottom, and finally out of shape to the point of being beyond recognition; (3) The competition for favor among the peers is far greater than the coordination, and the individualism is serious.
  3. Awe
  With regard to the attitude of uncertainty, we can first make decisions based on existing knowledge, and then adjust our decisions in real time as our cognition deepens. Business leaders are not always right, don’t worry about face when you correct yourself.
  Awe of uncertainty is very important. With awe, there will be a mentality of trial and error learning, the ability to quickly correct mistakes, and a dynamic strategy that adapts to all changes.

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