Although treasury and finance professionals are no strangers to uncertainty, the current environment presents unique challenges that may require the adoption of a new mindset. During the AFP 2020 MindShift Keynote presentation, sponsored by Capital One, quantitative futurist and best-selling author Amy Webb equipped attendees with the tools they need to think like futurists.
Webb began by dispelling the notion that the COVID-19 crisis was completely unexpected. In fact, she believes that there is no such thing as a unforeseen event. “I think we're living through an unfortunate moment in time, but the signals were there,” she said. “We just didn't have a mechanism to make decisions faster.”
Part of the problem is humans’ addition to certainty. Humans believe they can control their futures through certainty, and that it can be attained through enough data or through making the right moves. But certainty is brittle, she explained. “If you're measuring liquidity and risk and you don't have a wide enough perspective because you've never dealt with a chaotic event before, then your calculation is going to be off,” she said.
In the case of the COVID-19 pandemic and the resulting economic crisis, there has been much more certainty than people want to believe. “Everybody saw it,” she said. “We predicted a spread. We knew that there were supply chain issues. We knew that there were regulatory issues. We knew that a lot of companies have liquidity issues and we knew that there was bound to be job loss. The only real surprise from my vantage point here is how surprised everybody seemed to be that the outcome that we're in right now is what we would be living through.”
To be successful, financial professionals need to step out of their comfort zones, acknowledge risk, and lean into uncertainty in a methodical way. They need to understand that there are many different variables over which no one entity has control. This will help them to be more adaptable in their outlook for the future.
“My job is to lean into uncertainty with data and evidence and models so that I can reduce it,” Webb said. “As a futurist, my job is not predictions, it's connections. When I can make connections and do it in a really good way, then I can think through next order outcomes and next order impacts. If I can see plausible alternative futures on the horizon, then I'm able to reverse-engineer back to the present day, the future that I want to inhabit.”
PATHFINDERS AND BYSTANDERS
Webb believes that deep uncertainty produces two kinds of organizations—pathfinders and bystanders. Pathfinders usually use some type of strategic foresight process that systematically looks for signals directly related to and adjacent to the business and industry. Watching for those signals allows these organizations to track connections that will help them make incremental decisions. Pathfinders generally have an open mind to new ideas, lean into risk, and make small bets.
Webb considers Nintendo to be a pathfinder. Nintendo was not actually founded in the 1980s; it was founded in 1889 as a company that made hanafuda playing cards. At the time, Nintendo employed a large group of people to design these cards, and only the upper echelon of Japanese society could afford to buy them.
Though the company was successful for many decades, the advent of television forced Nintendo to rethink its game plan and it ultimately went in a new direction. Recognizing the popularity of Disney cartoons, Nintendo began licensing Disney characters and built a new game around them, targeted at children.
Eventually, Nintendo realized that to remain competitive, it would have to branch out from the playing card market and began developing video game consoles that could plug into televisions sets. And it didn’t stop there. In the 1980s, kids were flooding shopping mall arcades to play different types of videos games. So what did Nintendo do? It created a console that could play multiple games at home. And so it goes.
“Nintendo is by nowhere close to being the world's largest gaming company,” Webb said. “They certainly don't produce the most complex games that everybody gets excited about. But stop and think for a moment about what's happening with this company. This is the company that sets the pace for the rest of the industry. They've been around for almost 150 years, and they still make those original playing cards. Pathfinders seek out risk because at every turn; these decisions that they were making were risky. But rather than waiting for the risk to come to them, they sought out that risk to turn it into strategic opportunity.”
On the flipside of the coin are bystander companies. These organizations tend not to have a foresight process. They're adept at taking measurements and making projections. But they only measure things over which they have control. “They can see where they're moving the needle up and down, they can set benchmarks and they can meet those benchmarks, but they don't take into consideration the outside world,” Webb said. “They don't want to really look at any of the uncertainty. They don't want to lean into it; they ignore it.”
BlackBerry is a good example of a bystander. Founded in the 1980s as Research in Motion (RIM), BlackBerry really rose to prominence in the mid-2000s, and initially dominated the smartphone market. But like a true bystander, BlackBerry refused to look outside of its own business model, and ultimately made itself vulnerable. It ignored haptic screens, mp3 players and video playing capabilities. BlackBerry assumed that people wouldn’t be interested in using these features on their phones. And because of BlackBerry’s market dominance at the time, executives believed they had nothing to worry about. They thought wrong.
“BlackBerry could never see a future in which the phone would need to change, in which buttons would go away,” Webb said. “They certainly never envisioned a future in which the iPod might someday become an iPhone. The real tragedy here is that in the end, a lot of this had to do with the organization. Some managers did see the disruption, but they didn't have credibility outside their departments, awareness never broke through to senior leaders, and there was just aversion to confront cherished beliefs. Corporate culture punished different ideas.”
Webb concluded by encouraging financial professionals to start confronting uncertainty on a daily basis. All organizations, just like Nintendo and BlackBerry, are always facing existential risk. Whether or not the organization survives will depend on how it addresses risk in advance and whether leadership is willing to lean into uncertainty.
“You don't have complete control over everything, but you do have some control over the choices that you make about how to confront deep uncertainty and how to think about the future,” she said.
Listen to Amy Webb’s full presentation here.