Managing Risk in an Uncertain World
By Greg Reyneke, MWS
I am not writing this article on an airplane, or in a third-world country while managing a novel water project. Instead, I am with my leadership team, working our way through the complexities of the global COVID-19 situation and response. By now, you’ll have heard about the cancellation of trade conferences, cancellation of non-essential travel, school closures, lock downs, infringements on personal liberties and panic buying of various consumer goods. You’ll also have noticed irrational fears and unprecedented behaviors in the local, national and international marketplace. Information travels at almost the speed of thought and we are overwhelmed with massive amounts of information, good and bad. To say that this is an unprecedented time is certainly true.
Situations like this give one pause to consider the broader business environment and what the likely impact will be (now and in the future) from this incident and the inevitable next big one. Most graduates of business schools in the last 30 years have become accustomed to a paradigm where business is stable, predictable and routine, with one clearly defined performance metric: profit. Subsequently, manufacturers have spent the last 20 years streamlining their manufacturing processes, leaning their labor force and attempting to reduce overhead by doing the following:
- Adoption of lean management practices
- Offshore manufacturing and material sourcing
- Outsourcing design, manufacturing and even distribution
This of course has led to the global consolidation of commodity suppliers and an increase in centralized production and distribution, globally and in the US. This influences you as a water quality improvement professional in that your supply of systems, filters, chemicals and other goods can be impacted by events and attitudes many miles away. Some dealers have also been tempted to follow their own path to the bottom by only choosing vendors offering the lowest initial price point, choosing novelty over reliability and prioritizing initial business profits over long-term stability.
Global trade agreements and disputes are impacting local businesses more than ever before. Supply chain and employment disruptions are likely going to be the new normal as we continue to live through the 2020s. This can make any business person nervous and anxious, often paralyzing one with fear – fear of making a bad decision that could damage the business. Business owners and managers today are having to track more externalities and respond to more issues than ever before.
In 1991, while working in sub-Saharan Africa, I was introduced to VUCA. This acronym described the evolving strategic environment in Africa and globally to us. Our world was becoming volatile, unpredictable, complex and ambiguous. Beyond the fog of war that affected our local operating environment, there were externalities that caused us to have to rethink everything we knew. No longer could we work out of the old tried and proven playbook, because the rules of the game were constantly changing. We began to think instead on how to create order from the chaos, how to make rapid, decisive decisions and how to adapt to a dynamic operating environment.
The water business is not immune from VUCA
Volatility refers to unstable change. A resin supplier is impacted by stricter environmental regulations and must shut down operations in a geographic area. The supply of their media is no longer available or the price has increased significantly. We know what is going on and we know what the impact is. We typically attempt to deal with supply-chain volatility by carrying large amounts of inventory, which of course ties up cash flow and space.
Uncertainty refers to a lack of knowledge. A competitor has announced that they have a new product launching that will possibly disrupt your market position. Your business intelligence and analysis resources shine here in being able to interpret and understand things as quickly as possible.
Complexity refers to the number of components and the relationships between the components. Our modern business environment is inherently complex, with multiple factors interacting with each other. Complexity differs from complicated. A complicated issue can be better understood by analysis and investigation ahead of time. When dealing with complexity, we should map out how things interact and try to simplify issues through procedural change. Interconnected issues should be analyzed to understand the causes and effects.
Ambiguity is a cause of stress for many people, since the unknown unknowns create extreme discomfort. It is hard to plan for, or react to unknown causal relationships. People tend to avoid, ignore, or minimize ambiguity. Sometimes, we as leaders create ambiguity for our teams in that we are not clear in describing our strategic vision, which can harm our organizations. The best way to quickly learn about ambiguous situations is to take risks with experimenting on how to react to an issue.
Since it is virtually impossible to control the world around us and the business environment is changing so quickly, some use VUCA as an excuse not to think or plan strategically, citing the VUCA environment as an excuse to be reactive; this is a mistake. To succeed in the VUCA world, we must focus on the areas that produce the highest payoff for our organizations. Our priority must be developing and articulating a clear vision to drive our organizations’ actions.
Life is full of uncertainty and we certainly can’t predict or plan for every eventuality, but it certainly is wise for a business owner, manager or smart employee to consider the things affecting the viability of your business. A VUCA world requires changes in thinking and revision of your business process. Some ways to become more resilient are:
- Communicate with your vendors, learn from where their equipment comes and what measures they have in place to protect you during times of uncertainty.
- Take time to coach your team. Leaders guide and teach their teams, they don’t just give orders.
- Empower employees from the bottom up to make decisions early, while fostering an environment of open communication and constructive reporting. What did they do? Why did they do it? What can be done better next time?
We as leaders should also live and project the traits that will help our teams be better:
Be reliable in volatile situations
Be a person of your word. If you make a commitment, hold yourself to it; drive positive momentum through your own actions. Honor commitments to yourself, your significant other, your team and your vendors. Don’t commit to something if you don’t intend to honor that commitment.
Be trustworthy in uncertain situations
Engage your team positively, invest in existing employees and involve strategic partners in relationships of mutual respect and understanding.
Be direct in complex situations
Transparency of information communicated and received fosters mutual trust and enhances collaboration among all parties. If you’re in a cash-flow crunch, communicate early with your vendors instead of avoiding them.
Be understandable in ambiguous situations
Empower those on your team with clarity in purpose, direction and assignment of responsibilities. Clarity and simplicity are key; six separate emails are often better than one complex one. Communicate your expectations for a timeline, outcomes and alternate results, along with the metrics for success. Also establish clear rules and boundaries for bilateral communication.
There will be difficult days, weeks and months ahead as the market continues to be volatile and people work through their fears. No business was expecting this, least of all small businesses. Tough times flush out weakness in some and help to identify hidden leadership potential in others. Now is the time for you to rise to the occasion and lead through the uncertainty!
About the author
Greg Reyneke, Managing Director at Red Fox Advisors, has two decades of experience in the management and growth of water treatment dealerships. His expertise spans the full gamut of residential, commercial and industrial applications, including wastewater treatment. In addition, Reyneke also consults on water conservation and reuse methods, including rainwater harvesting, aquatic ecosystems, greywater reuse and water-efficient design. He is a member of the WC&P Technical Review Committee and currently serves on the PWQA Board of Directors, chairing the Technical and Education Committee. You can follow him on his blog at www.gregknowswater.com