Managing in a time of Uncertainty

Businesses are used to taking risks. It is the nature of starting and building an enterprise that certain unknowns will need to be handled, including changes in market conditions, staff and technology. However, what many businesses today are facing goes beyond risk. They are operating in a world of deep uncertainty. Uncertainty is different from risk in the sense that uncertainty occurs when organisations face unpredictable circumstances that influence their ability to make confident decisions. Unlike risk, which can be measured and mitigated with informed strategies, uncertainty involves variables which are difficult to foresee and have little quantifiable historical data to go by.

This distinction between risk and uncertainty is crucial for today’s business leaders. While risk allows for calculated decision-making, uncertainty demands agility and adaptability. 

Even as the risks associated with inflation are retreating, the uncertainty arising from myriad issues such as geopolitics and global trading disorder, is only increasing. A recent business survey by Macquarie University cited uncertainty as the main concern for business leaders today. This uncertainty is leading to decision-making paralysis. While firms are not expecting to reduce investment or employment, they are not looking to expand them either.

Business leaders have been facing a series of once-unimaginable shocks in recent years, starting way back with the global financial crisis, through to the COVID-19 pandemic and Russia’s invasion of Ukraine. The challenge is not just the increasing uncertainty surrounding known risks, but the increasing pace at which these risks are presenting. In March, everyone was convinced the algal bloom off the coast of South Australia would naturally dissipate over winter. By September the Federal and State Governments were throwing almost $30 million at the problem with more likely to come as businesses that rely on summer tourists struggle to survive.

The complexity of market uncertainty is also on the rise as it increasingly interacts with other areas such as politics, climate, demographics and societal concerns regarding technology. Businesses are being held to account on these issues, or at least to explicitly include them in operating decisions. This has made risk harder to identify and price because historical experience no longer holds. Today’s CEOs often don’t have the experience through which to filter this new reality. And the signals are not clear: Experts disagree about fundamentals, such as whether large budget deficits are good or bad, how permanent the new tariff regime will be or how AI will impact individual businesses. What seems clear is that any key assumptions developed more than six months ago have to be revisited.

While business leaders need to manage risk, they should also be alert to opportunities. Studies coming out of the COVID-19 period show that those businesses who were constantly adapting and reassessing their strategies performed best. Everything from the processes through which they conducted their businesses, to the products they offered, to how they interacted with suppliers and customers, were constantly adapted. Experimentation was key, meaning, getting it right the first time was not expected. Trying something new took precedence.

Awareness is a key factor. Consistently identifying and assessing not just risks, but market potential, is what drives growth in these markets. Businesses need to think beyond robustness - the ability to withstand adverse impacts – and move into resiliency - the ability to adapt and bounce back. While companies can apply rigorous risk assessments and put in place measures to reduce risk or try to limit its impact, it is the ability to pivot and be creative in developing responses to these risks that will see businesses through and may even get them to the next level.

Businesses know their markets better than anyone, so they are in the best position to develop new and novel approaches to bouncing back from adversity. Those that allow themselves and their workers to try new things and, shall we say it, take a risk, in finding new solutions, stand to gain the most.

Corporate leaders are applying different approaches to try and address today’s uncertainty, but a shared mindset is clear: the need to increase broader global awareness is key. Preparedness comes through mental resilience and agility. It can also come through collaboration. Another important determinant to business success through COVID-19 was relationship building. Many businesses developed relationships with other businesses, mutually identifying ways to remain relevant and survive. Sharing insights and expectations going forward may strengthen the entire business community.

The business community needs to adopt a more resilient, flexible and open mindset. While no business leader believes all risks can be eliminated, understanding key vulnerabilities helps to deal with a world than can sometimes appear to be out of control. There’s never been a better time to get mentally fit to deal with whatever the world is about to throw at us next.