Foresight and strategy in a fast moving modern world

Paul Higgins
Emergent Futures

Take Home Messages:

• We are moving from an information focused world to a networked world.
• This change is increasing uncertainty and volatility in the agricultural supply chain and markets.
• We will need new skills and approaches that can operate successfully within this new paradigm.
• The key skills will be the ability to harness the value in cooperating networks rather than being an “expert”, plus the ability to be comfortable with, and gain advantage from uncertainty.

Introduction

We live in a world that is characterised by a rapid pace of change, high levels of uncertainty, and greater possibilities for disruption than ever before.

From a farm adviser point of view this is being driven primarily by a rapid transition from the information age to a networked age where global connections between people, organisations, and markets are introducing greater complexity and fragility than we have previously experienced. This is being facilitated by the development of technology but from an advisory point of view it is the human interaction with these technologies that is the most important factor, not the technologies themselves.

sorts of changes. What I mean by complexity is the state of a system where the number of players and connections involved in a situation raises the level of uncertainty so high that it is not possible to predict the outcome. In a world of interconnected global markets, problems in one area are transmitted to another and the complexity of the interactions has made predictions by the International Monetary Fund (IMF) and the World Bank completely useless from a practical point of view.

What I mean by disruption is abrupt change that completely changes the way things work in a very short period of time as distinct from just increasing pace of change. The advent of the global financial crisis was an abrupt, disruptive, event even though in retrospect we may be able to explain its inevitability.

When I talk about fragility, I mean the tendency of a system to break more easily or more often. The response of governments around the world to the global financial crisis demonstrates the fragility of the system, adviser and the “too big to fail” mantra reinforces this view. A robust system survives and changes if parts of it fail. A fragile system is endangered when parts of it fails.

So what does the future for advisers in the agricultural system look like within those contexts? 

In a broad sense it will mean that:

• Farmers, and the supply chain they are involved in, both upstream and downstream, will be far more connected and networked together than ever before.
• All of this supply chain will use information technology to generate new information and to communicate with each other. As the costs of computing power continues to fall and the amount of energy per calculation falls even more rapidly, the installation of sensing and measuring equipment into the entirety of the supply chain will accelerate.
• The best farmers will be far more knowledgeable than ever before as more information becomes available and the complexity of dealing with it rises.
• The capacity to access and exchange information and skills via the internet, smartphones and tablets will increase enormously.
• The capacity for individuals and smaller organisations to generate insights and transfer those insights via technology will increase significantly, as will the capacity of individuals to service many clients.
• The middle man who does not add significant value to the process will come under increasing pressure.

There will be increased demand for standard risk management processes but also a demand for new risk management practices to deal with the levels of uncertainty that will be present.

Taken together these things mean that:

• The primacy, and therefore the value of information per se, will be relatively lower in the future. So if you are a technical expert whose value proposition relies on the handing down of ‘holy wisdom’ you had better start rethinking your business model.
• The ability to deal with masses of data will become more valuable. In fact there are many predictions that the demand for individuals that can work with large masses of data is going to significantly outstrip the global supply of such individuals.
• The ability to network people together and facilitate the generation of new insights and learning will become more valuable. This will apply across communities of common interests which may be groups in local areas but may also be scattered across the country and across the world.
• Socially mediated skills transfer and information exchange through social networks will become a major source of information, insights, and skills in the next decade.
• There will be greater transparency throughout the supply chain as the capacity to measure and record information grows more affordable. This will flow through to the consumer to a greater or lesser extent depending on the nature of the products they consume. For example, a branded product with a specific supply chain will face the need to supply far more information than a bulk commodity product. Areas of importance to consumers are likely to include climate change gas contributions, land management, and greater scrutiny on chemical use than ever before.

Due to the levels of uncertainty in the forward view, it is impossible to say with great specificity what the whole system will look like. What it is possible to say is that the way we deal with the challenges as advisors requires a change in mindset in three critical areas:

Ego

One of the hardest things for people to accept in a highly complex environment is that they cannot know the answers because they are intrinsically unknowable. This is particularly hard for smart people who have been used to being the expert in the room or in the transaction. Technical expertise and technical information will still be important but they will be relatively less important than they have been in the past. This requires a different way of working and in part involves the setting aside of ego, and the development of new skills. One of those skills will be the ability to stop looking for certainty to replace the uncertainty, and instead to look for insights and approaches that will allow people to deal with the uncertainty.

Facilitation and Network Skills

In a world where information is more freely available, and connections between people and organisations are ubiquitous the ability to work with those networks will be a valuable future skill. The value of a network that fully utilises the skills of all its components will be far higher than the value of the individual guru or expert. The ability to create trusted links between people, to facilitate the ongoing exchange of value, and to make a contribution to the network that is not transactional in nature will be critical skills for the adviser of the future. 

Risk Management

With higher levels of uncertainty and volatility likely to be present in both the production system and in global markets the demand for risk management will be high. However this will need to include new approaches along with existing ones. By definition, if uncertainty and volatility become higher then the value of historical data used for risk management becomes lower. Also by definition if you look for the worst case historical scenario you can find to inform your decision making it was not the worst case historical scenario when it actually happened. As a practical example two thirds of the homes damaged by Hurricane Sandy in New York recently were outside of the 100 year flood zone.

In his book Black Swan, Nassim Taleb explained Black Swan events – unexpected, low likelihood events that have a dramatic effect. Many people that I have spoken to at conferences and in doing client work have misinterpreted the intent of Taleb’s writing on these issues. His key point was that Black Swan events are unpredictable. Many people have responded to the ideas by striving to make their prediction systems and abilities better, which will never work. In terms of the use of historical data, Taleb tells the story of the Thanksgiving Turkey. The ill-fated turkey receives information every day of its life that the human race is kind and benevolent, until the day it receives conflicting information and has its head chopped off.

We must develop new ways of managing risk, and looking for opportunity in the uncertainty and volatility in order to gain competitive advantage, and avoid losing our own heads. One of the ways to approach this is to look for opportunities in the market place where the market has mispriced risk. If we go back to the example of the global financial crisis, a number of brave investors bet against the short term success of the insurance contracts that were issued against the chance that the bundled mortgages would fail.  This required a different mindset and not inconsiderable courage as they made a series of investments that failed over a period of time before being successful (I recommend you read The Big Short by Michael Lewis if you are interested in this story). The trick is to look for opportunities such as these that benefit from insight into the system and its volatility without taking undue risk.

The world is changing and the way we work needs to change to match the future realities we will face. This will mean changes in the way value is created that will require advisers to gain new skills and take on new approaches to a complex and networked world. There will be many exciting opportunities available to those who provide real value in this changed world.

Contact details

Paul Higgins
Emergent Futures, Level 27, 101 Collins St, Melbourne, Victoria 3000
0408 557 583
paul@emergentfutures.com