Ethos Issue 4, Apr 2008

Managing Complexity and Uncertainties
Lam Chuan Leong

This is not a trivial task. Take the stock market for example: if the indicators point towards certain outcomes rather than others, then a strategy can be chosen. The sub-prime loan crisis is a good example of this process. Obviously the various scenarios of what can happen cannot be unknown to all the banks, but in their actual selection of strategy, each bank will act differently on the basis of its understanding of the market and its view of the indicators that it has developed. As it turned out, only Goldman Sachs read the appropriate signals and was duly rewarded.

THE NEED FOR CONTINGENT EXECUTION CAPABILITY
Another vital step in the scenarios to strategy process is the need to build contingent execution abilities. Singapore has been extremely successful in identifying needs and building the execution ability and institutions to carry them out. This is a key ingredient of our “brand name” overseas and what many other countries have sought to learn from and emulate. These execution abilities will have to be maintained. Going forward, however, future uncertainties identified from scenarios have to be addressed through what may be called contingent execution abilities. These are abilities that can be called upon for execution not for ongoing projects but for unexpected outcomes.

One good example of this approach is the military. It is clearly impossible to foretell the development or nature of any specific conflict and how it will unfold. No military is built to execute a specific strategy, however likely it is. Instead, armed forces must be trained and equipped to be capable of dealing with the full range of possible outcomes envisaged under the scenarios.

The fact is that outside of the military, contingent execution abilities are rare because of the cost of this extra “insurance”. In stable times when conditions are unlikely to change much or to change slowly enough for new execution abilities to be acquired in time, there is no point in paying this “insurance” cost. But the outcome of armed conflict is so clearly damaging that countries do pay this insurance cost for such contingent execution potential. Civil defence measures to manage potential natural disasters and preparations for health threats like a flu epidemic are other examples of such contingent execution ability potential.

CONCLUSION: EXPECT THE UNEXPECTED
If uncertainties and their downside risks are increasing in pace and impact, it is necessary to pay more attention to risk identification and anticipation. More creativity and diversity is needed in this process; scanning and interpretation of future outcomes are made more difficult by the human tendency to be trapped in past mental models. We must expect that linear extrapolation from past experience is not a sufficient guide.

Scenario planning, amongst other techniques, offers good help in extending the ability to “foresee” unexpected outcomes. However, enormous domain knowledge, skills and often luck are needed to set up a system of indicators or trip wires that will help guide strategy formulation. In the execution of strategies, more monitoring of the impact of decisions and, in particular, a system of risk assessment and management has to be deliberately set in place and institutionalised. It is no longer possible to trust that a well reasoned and thought-out strategy will be executed flawlessly or not encounter unexpected outcomes.

Finally, where the cost and benefits justify it, thought should be given to a development of contingent execution abilities beyond those needed for current operations.

Mr Lam Chuan Leong is Senior Fellow at the Centre for Governance and Leadership, Civil Service College and Ambassador-at-Large with the Ministry of Foreign Affairs. He is also the Chairman of the Competition Commission of Singapore. Mr Lam’s key areas of interest and expertise are in the application of general management theories, particularly in the context of complex systems. His career background has been in macro-economic management, trade and investment and science and technology policies. In the course of this, he has worked on micro-economic issues, particularly in regard to regulation, monopolies, competition policy, pricing and market efficiency, privatisation of government services, transport economics, and the relationship between the public and private sectors on key projects.

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