Both risk and opportunity, as the essence of entrepreneurship, are prominently linked to the assessment of uncertainty. The increasing interweaving of local and global business activities challenges traditional strategies of decision-making: Entrepreneurs are confronted with information that is ever-growing in complexity and scope. The ambitious programme of the Europe Asia Young Leaders Forum 2003 aimed to identify the basic parameters for dealing with uncertainty and complexity. It was the goal of the conference to suggest avenues for action and analyse past and present strategies for successful leadership and risk management during times of uncertainty. In their welcome, Dr Kai M. Schellhorn, BMW Foundation Herbert Quandt, and Prof Wong Poh Kam, NUS Entrepreneurship Centre, emphasised the quality of the participants and called upon their cooperation and mutual trust. Under their joint chairmanship the conference proceeded with precision within the Baroque walls of the Cloister Irsee.
SESSION ONE: LIVING IN TURBULENT TIMES: HOW DO INDIVIDUALS COPE WITH COMPLEX, CONFUSING SITUATIONS?
How do individuals make judgements and decisions under conditions of risk and uncertainty? To what extent does the dramatic increase in available information influence decision-making processes? What can we do to improve our decision-making?
The introduction given by Prof Dietrich Dörner, University of Bamberg, aimed to give empirical and psychological background information on how individuals and groups react to complex and confusing situations. Prof Dörner pointed out basic behavioural tendencies by first identifying the parameters of network interaction and its psychological effects. Based upon this, he explored the possible fallacies within the decision-making process and concluded by briefly outlining the effect of group dynamics. The starting point of his exploration of the psychology of individual and group behaviour was the definition of the parameters of interaction. "Everything is connected" was both the simple yet complicated answer Prof Dörner offered for the interaction within network systems. In order to demonstrate this point, he gave the spring mattress as analogy for complex systems: Move at one point and other points will move as well. Prof Dörner, however, immediately stressed the limitations of this analogy: One major characteristic of complex networks is their active, not passive, behaviour. They are conditioned by weak causal correlations, non-transparency of the situation, dynamic interaction, and the overall existence of many variables. Weak causal correlations limit the possibility to link cause and effect linearly, whereas the dynamic interaction at the same time multiplies possible "starting points" in an active system. As a result, "often very small differences call for a different approach". As for analysis and decision-making, this means that the conditions for actions cannot be completely understood, and that goals and appropriate measures are limited by time. This set of parameters, affects the psychology of complex systems. People in complex situations experience feelings of uncertainty and incompetence. While this is a normal reaction, as "anxiety is the reaction of the human soul to complexity", it, reduces the capacity for a multi-perspective analysis and encourages a conservative course of action. Under such circumstances, the collection of information is subject to several limitations: One seeks affirmative information, which supports the already formed opinion, or reduces all conditions to one cause. One tends to think in categories instead of interdependent systems. One focuses on snapshots of the situation instead of viewing the bigger picture, and makes wrong analogies to familiar experiences.
 |
|
Prof Dörner identified the patterns and problems of planning and decision-making, which then can be examined during complex situations. "Deconditioning" describes the tendency to leave out if-causes and unduly simplify situations. In addition, goals-for-measures activities can be observed, which result in commitment but not in action, whereas "Bang-Bang" decisions are limited to solving the momentary situation. One can also observe the tendency to focus on what people can do instead of what they should do and to stick to outdated methodical patterns and over-planning. Another common reaction to uncertainties is the immunisation against critics. As much as these problems seem to be issues of individual perception, groups do not necessarily constitute a remedy. Indeed, they can be a danger, as failures can lock out critics and push the entire group into a conservative line of action. Loyalty within the group can cause an equally dangerous vicious circle, if people stop raising objections or uttering controversial opinions due to a strong sense of loyalty.
SESSION TWO: HOW TO LEAD IN TIMES OF CHANGE?
Which personal abilities and skills are necessary to work creatively and sustain focus in a complex work environment? What are the qualities of a leader who can deal with situations of crisis and unexpected changes?
Mr Wong Ah Long, Suntec City Development Pte. Ltd., set out to explore today's requirements for leadership under the pressure of rapid change. Using the development of Suntec City, Singapore's largest facility complex, as an example, he distilled the new requirements for leadership and its implications for facility management.
Today's changing communication possibilities have reformulated the question about what constitutes the best leadership. Yet some basic parameters for effective leadership do hold true: effective leadership is relevant and adds value, regardless of time and place, and regardless of the style and form it takes. But with the rise of globalisation and the convergence of technologies, it is necessary to adopt a new style and a new philosophy in order to stay relevant. Today, the characteristics of a good leader combine humanistic aspects (knowledge of arts, culture etc.) with technological know-how (science). Suntec City is a good example to see the evolution of a new relevant leadership model. Based on the simple Chinese philosophy of tolerance, perseverance, and respect, a foundation of harmony and consensus was laid before building the physical environment. However, for the physical construction to be financially successful, it was necessary to make a thorough evaluation of the new environment defined by the internet and globalisation.
Mr Wong identified three major insights, which have caused Suntec City to adjust its positioning in order to stay relevant: a) In times of rapid change and global communication being fast is of crucial importance - the first mover advantage; b) networking will exponentially add to the overall value of the structure - the power of numbers; and c) the bringing together and cooperation of individual value-adding entities (facility owner, tenant and consumer) will further add value to the entire complex - the power of hubbing.
|
|
Following Mr Wong's analysis of changing management methods and requirements in times of technological convergence and informational ubiquity, Dr Hilary Harris, Cranfield School of Management, set out to trace the roots of global leadership skills. The starting point of her talk was the definition of global leadership. Dr Harris offered a short answer to this: Leadership is the will to convince people to do and think like ourselves. However, cultural differences do have a most profound effect upon this aim on a global level. Yet the understanding of these influences is limited by one's lack of time for self-reflection. To illustrate the limitations of one's own perceptions, Dr Harris handed out a questionnaire. The participants were asked to answer the questions according to a list of rules in two minutes' time. The questions were rather incoherent and sometimes extremely personal. After the set time, Dr Harris focused on how the participants had felt during the assignment. The general feeling was one of uneasiness, mixed with uncertainty about the assignment's goal, which resulted in aggressive answers or in assertions of the stupidity of the task.
Dr Harris took this as a starting point because "as a manager it is important to deal with emotions". Especially on an international level one has to be able to deal with emotional situations involving colleagues from different continents. In order to achieve this goal, it is necessary to understand one's own background, especially since one's cultural identity is more deeply rooted than one usually expects. Socialisation, the process of being integrated into one's social surrounding when growing up, inscribes the cultural values of the environment into everybody. Only through self-awareness, one can understand how one's own culture relates to the basic values of other cultures. As an example, Dr Harris cited that most textbooks at Cranfield University are coming from the United States and accordingly reflect an American cultural outlook.
NETWORKING IN NATURE
Friday afternoon was reserved for the Networking in Nature programme. But, as the warm weather had been dislocated by wind and rain, the outdoor programme was relocated to the indoor ice-skating rink of the nearby town of Kaufbeuren. All participants were divided into four groups and had to execute three tasks. The aim of the tasks and the respective de-briefings was to experience the individual and group reactions to new colleagues and situations and the thus arising uncertainty.
As was evident from their reports the next morning, it was clear to all groups and participants that they had learned a lot about leadership and leadership qualities, cooperation and team spirit, and the role of expertise to master new challenges. Most importantly, though, they had enjoyed getting to know their companions in a relaxing and playful environment. The temporary rivalry among the four teams did not hinder anyone from partying together that evening.
SESSION THREE: PREPARING FOR THE UNEXPECTED: RISK AND OPPORTUNITY IN THE BUSINESS WORLD
How do companies assess risk when they are faced with an increasingly fast-changing unpredictable environment? How can they anticipate opportunities in time and ensure they are agile and innovative? How can businesses react appropriately to situations of crisis and times of change?
In his talk, David Marsh, Droege & Comp., presented 10 "home grown precepts" - as he self-ironically called them - essential for managing risk in a company. They combined both personal advice and advice about best practice:
1. |
Work out a strategic roadmap: Make it strong but supple. It should act as a compass, but not be so inflexible that you cannot change it. |
2. |
Try to find some early warning system. You need to be aware of event risk, people risk, customer risk. |
3. |
Build up a circle of advisors you trust. Select them from within and without the company: Do not select only yes-men or yes-women, and be aware that advisors have their own interests and conflicts. |
4. |
Try to practise maximum communication, but in a disciplined way. Create a positive atmosphere in your company. |
5. |
For your external communication, adopt the same guidelines as for internal communication. |
6. |
Be aware of and foster the cultural differences in your company. See diversity as a source of strength, and use it as a means of offsetting risks. |
7. |
Practice a prudent diversification in your company. Control of diversification is extremely important. |
8. |
Try to do a risk audit once a year regardless of whether you are a one-person company or a large company. |
9. |
Do not believe in the law of immutability. Learn to live with fractures and dissonance as well as harmony and accord, for the two opposites can sometimes lie very close together. |
10. |
Prepare an action plan for the worst-case scenario. If you hope and work for the best, but prepare for the worst, you will not only not be disappointed, you may also run a more productive and prosperous business. |
|
|
Mr Marsh did not close his talk without adding an eleventh piece of advice: Keep a good sense of humour and a sense of perspective at all time.
The closeness of risk and opportunity was the main topic of the talk by Prof Katherine Xin, CEIBS, along with strategies to strengthen crisis management in organisations. As her focus was on real life practices, Prof. Xin asked the participants to name a few examples of headlines, which could possibly influence their work. The things mentioned by the participants included events on the stock markets, energy supply, war, take-over, SARS, computer viruses, earthquakes and many more.
Prof Xin then took the Ritz Carlton hotel in Shanghai and its management's reaction to SARS as a case study. As a framework the Ritz' bookings had dropped from 100 per cent to 10 per cent. Prof Xin asked, "What would you do?" The proposals of the participants ranged from closing down the hotel for the time being, taking the time to train the staff or put them on vacation, to communicating frankly and objectively to increase trust, to renovating the building, initiating new marketing actions and asking for financial help from the government.
Prof Xin demonstrated that the management actually did take many of the above-mentioned actions to overcome the crisis:
1. |
They established both internal and external communication channels in real time to show competence. |
2. |
The employees were asked to share the burden. In order not to lay off any of its highly trained staff, the employees helped by taking lower wages or taking holidays. |
3. |
Renovations were scheduled and only a few floors were operating. |
4. |
Marketing shifted its priority from international to local customers. They successfully offered full-range services to local companies in- and out-house. |
5. |
And in order not to spread the disease among its own employees, the staff was divided into four shifts that were not allowed to have any contact with each other. For this the management relied upon the staff's understanding of work routine and responsibilities, and the good communication channels (e.g. PDA, SMS). |
|
|
By way of summary, Prof Xin concluded that in times of unpredictability the ability to improvise was the most important competitive edge. For an organisation it is crucial to act in a balanced way and avoid both the "chaos trap" (uncoordinated actions, loss of focus) and the "bureaucratic trap" (paralysed by rules, structures and regulations). A set of key concepts might help to deal with this dilemma of navigating at the edge of chaos. They include 1) an adaptive culture within the company, 2) flexible semi-structures, and 3) real time communication. If a company follows these principles, it will result in self-organised behaviour. Self-organised behaviour means to keep a balance between execution and innovation, even in times of crisis: That means, you are able to execute your critical tasks and your daily business without lowering your sights, and, at the same time, you have the capacity to deal creatively with the new situation.
Drawing upon his own experience at Lufthansa German Airlines, Mr Thomas Sattelberger, who is now affiliated with Continental AG, offered a broad insight into the management strategies of Lufthansa during and following the terrorist attacks on 11 September 2001 in the USA and the SARS crisis in 2003. As he analysed the major tools for managing the unexpected, he also offered a perspective for a future constant-shock scenario.
|
|
Mr Sattelberger opened his talk with a short summary of the strong effects of both incidents on Lufthansa. 9/11 and SARS had an impact on the whole airline industry and its connected industries (e.g. logistics, catering) which amounted to a job loss of 1 to 1.2 million. Lufthansa experienced a drop in demand of 38 per cent over the Atlantic, 20 per cent to the Near East, 10 per cent in Europe, and 32 per cent in Germany, and was losing five million dollars a day. Lufthansa's reactions to the unexpected attacks of 9/11 were fast and varied: The management responded rapidly with regard to both customers and employees. As an immediate reaction to the attack, an emergency aircraft and psychologists were dispatched to the passengers grounded in the USA. Lounges for passengers who were stuck were prepared. Great importance was attached to communication within and outside the company, and in order to demonstrate to the frightened staff their trust in the company's security measures, Lufthansa's top managers flew to destinations perceived as insecure, e.g. Tripoli or Beirut. In the following days, the company worked on protecting its liquidity by rapidly adjusting capacity, closing down the Lufthansa hotels, and downsizing the fleet. Mr Sattelberger pointed out, that it was a key issue to restructure the production platform of the entire Star Alliance network. As the main costs in the airline business result from aircrafts and personnel, the faster you downscale your operation the easier you can avoid losses. Therefore, for Mr Sattelberger the decisive point was not to take action, but to be the fastest airline when it came to taking action. At the same time the downscaling should be executed in a way that would allow a fast build-up.
Based upon the two case studies of 9/11 and the outbreak of SARS, Mr Sattelberger then focused on the deep impact of crisis and uncertainty on the company and its personnel. He suggested that management needs to focus on the "soft" side, because in times of crisis organisations feelings of fear tend to develop within organisations which easily breed helplessness. This also holds true for the management and its emotional resilience. The relatively calm situation during the last decade, Mr Sattelberger suggested, has brought forth young managers who had never experienced setbacks and crisis. Thus, they could hardly handle a major crisis like 9/11, and tended to transform into a "community of pain". To cope with this challenge, Mr Sattelberger offered a set of measures to create a "community of optimism" instead: These measures included immediately turning to the relevant stakeholders for support, communicating a positive message in order to counter doomsday perceptions, and - as for the management - offering personal sacrifices when asking your staff for personal sacrifices.
Summarising the outcomes of 9/11 and the SARS crisis, Mr Sattelberger implied that a fundamental change for business has come about: One has to face the reality that business has entered a period of extreme uncertainty and vulnerability. Companies need to prepare for this situation by, e.g., analysing the patterns of previous crises. Based upon this evaluation, hints for fast action can be distilled. In order to cope with the growing volatility in business, Mr Sattelberger finally focused on four crucial points:
1. |
creating a rapid response culture, as speed is a crucial success factor; |
2. |
engineering an organisational architecture with built-in reverse flexibility; |
3. |
enhancing "breathing" human resource policies; |
4. |
protecting a stable value-based core (taking care of the brand, the business profile and the people). |
|
|
Drawing upon his background in the insurance sector, Mr Scully suggested that risk management was about some basic skills owned by everybody, the terms of which he set out to explore in his talk. First of all, he contested that risk and return go together, and that all of the persons present were in the business of taking risk. Even more, everyone expects a greater return when taking a greater risk. Instead of avoiding risks, business seeks to get the best trade-off between risk and return. This very expectation and calculation with risk can be considered the hallmark of our times: To take a risk and gain through taking risks is the motor of modern economy.
As for the management of risk, Mr Scully presented tools that have been developed by insurance companies. They include:
As the tools are growing in sophistication and reliability, Mr Scully warned, however, of the growing risk in over-relying upon them. And even considering the increasing reliability of the forecast models, some basic principles remain paramount which characterise the winners in the insurance industry:
Mr Scully suggested, though, that a new environment has evolved for insurance companies as risks are correlated in a way they have not been before. As an example, he cited the attack on the World Trade Center, which uncovered the potential of man-made catastrophes, or insolvencies like Enron, which showed the potential of aggregation.
SESSION FOUR: MANAGING UNCERTAINTY IN INTERNATIONAL MARKETS: Which particular risks do companies encounter upon leaving a familiar culture? How can they ensure adequate risk management? Are there different approaches and strategies in dealing with uncertainty in Europe and Asia?
Mr Stan Shih, The Acer Group, offered his view of the development, key elements and opportunities of a knowledge-based economy. From an analysis of the present situation he deduced future potentials and strategies for management practices. Mr Shih's analysis was based on what he named the "disintegration century": by which he meant the collapse of vertical integration that started in the 1990s, a parallel shift of values, and unlimited opportunities. The implications for management are: focused management (which he held especially true for Asian businesses which are very diverse), its horizontal organisation for consolidation and its keeping to an open standard. The paradigm of such management in a knowledge society would have to be: "Go big in one segment, otherwise go home."
Mr Shih argued that, in the environment of disintegration, added value can now only be generated in the areas of R&D (in terms of intellectual properties) and distribution (in terms of brand/service). As for R&D, he saw the challenge in global competition, whereas for distribution, the stress lay on local competition. Manufacturing, however, was low in creating added value.
Based on this analysis Mr Shih extracted the following key factors of a knowledge-based economy:
which combine to form the infrastructure of the knowledge society.
In order to follow the paradigm of the knowledge economy, growth must be ensured through continuous investment for the future in terms of either time, budget, or energy, and change management. These points become necessary, as unchannelled growth shows limitations. Therefore, successful models must also change with time and place to meet the new requirements.
Mr Shih then focused on some basic international management issues and considered their adaptability to the knowledge economy. He stated that, in general, marketing is more challenging than R&D, that Asian companies do not have a good management guideline for executives to follow, that the Japanese system is too "Japan-centric", and that US and European companies developed better practice in international management.
He then identified key risk areas in the course of business growth:
In order to manage these risks, Mr Shih proposed first to take control in a market with a similar culture. In this environment, you can develop a talent and management system. In a second step, the management would be localised, with a periodical auditing system until mutual trust has been built. Thus, the management infrastructure is built up before major business expansion has taken place.
Apart from these business practices, the knowledge economy also requires the individual (leader) to invest into the future. The leader can do so by consistent self-challenging and self-education, being cautious not to fight unaffordable or unwinnable battles, and cultivating one's own successor. The challenge of change management would be to admit losses, to change one's own mindset through a change of position and reverse-thinking, and to practice a transition management by being responsible and attentive.
In conclusion, Mr Shih drew attention to another implication of the knowledge-based economy. While hard capital (money, land, etc.) remains the same over time, the soft capital of a business (legal, marketing, human resources, etc.) is changing over time and includes many factors, stages, traps and approaches. In short, soft capital, Mr Shih concluded, plays a much more important role in the success of a business.
|
|
In his presentation, Mr Karl-Heinz Kalbfell, BMW AG, explained how the BMW Group approaches the issue of uncertainty and what measures it takes to minimise uncertainty.
Mr Kalbfell set out to define the cornerstones of BMW's policy as 1) an absolute brand orientation; 2) a conscious focus on the luxury niche; and 3) the requirement of profitability in all segments.
With these prerequisites in mind, the minimising of uncertainty can be approached by a series of measures and actions:
Referring to BMW's Asia strategy, Mr Kalbfell then illustrated how these measures work in practice. As a result of the analysis of social milieus, BMW has identified the milieu of modern entrepreneurs, young social climbers and new professional elites in Asia as its key customers. However, their automotive needs do not necessarily comply with, but might sometimes even contradict the needs of BMW customers in other markets: In Asia, e.g., customers rate roominess very high, whereas for European BMW owners dynamics is of crucial importance. With regard to the product programme for Asia, this means that BMW's focus is on sedan cars and sport utility vehicles (SUV), putting less emphasis on coupés, cabrios and roadsters.
In conclusion, Mr Kalbfell summarised the key factors used by BMW to minimise uncertainty. Firstly, it is absolutely crucial to maintain an international focus on the brand and product strategy. Secondly, you need not only gather accurate data, but, most importantly, you need extensive knowledge about foreign cultures, customers and business processes. And, thirdly, you must integrate into the local business community and practice co-operative decision-making between local business-partners and global headquarters.
Ms Koh Soo Boon offered a Venture Capital perspective on global uncertainty and identified the several types of risk in a globalised world. As the business landscape is rapidly changing in the wake of globally failing markets, terrorist attacks and depressed stock markets, Asia is also changing rapidly due to China's entry into the WTO, infrastructure build-up, and outsourcing to Asia. Asia is thus accumulating more weight in the capital markets, acts as a magnet for capital inflow, offers abundant engineering resources and experiences a rise in affluence.
For companies entering the international market three types of risk were outlined by Ms Koh: First are the basic risks of the market: technical risks, management risks (e.g. engineers as founders), the general product acceptance, the business model itself, and the missing exit strategy. A second layer contains the macro-environmental risks, i.e. the political risks comprising domestic instability or foreign conflict and/or protectionism through measures like quotas, subsidies, cartels and bribery. On a meta-level, international businesses face risks consisting of cultural differences (language, symbols, values and beliefs, social orientation) or global economic crises (lack of infrastructure and currency risks).
In the face of such risks Ms Koh presented three basic strategies and their advantages and disadvantages for entering international markets. She argued that the licensing and franchising scenario has its advantages because it does not involve a large financial commitment, but risks the rise of competitors. A strategic alliance helps to exploit the economies of scale, to fill the gaps in technology and expertise, and results in a quick market entry. However, strategic alliances also limit control and profits, risk the disclosure of sensitive information and need to overcome issues of trust and cultural differences. While a direct presence certainly gives full control over all business processes and gains the favour of the foreign government, complexity, and financial and human commitment do add up to the greatest uncertainty and risk scenario.
Ms Koh reminded the participants that in the ever-changing world of business and management, the key point was to "retain the relationship to keep the following". Building networks - this was the advice she gave both old and new businesses.
FAREWELL
After a joint sightseeing tour of Neuschwanstein Castle, the last conference evening was spent in the warm atmosphere of the small Bullachberg Castle nearby. In his dinner speech, Prof Liu Ji, Executive President of the China Europe International Business School (CEIBS), cordially invited the participants to visit CEIBS in Shanghai, and expressed his hope that everybody will meet again at the next Europe Asia Young Leaders Forum, which is planned to take place in China again. |
