Reprinted from Britten Coyne Partners’ Strategic Risk Blog.
Over the last several years in our research, writing and consulting work on Strategic Risk Governance and Management, we have been seeking to define the measures that organisations can take to improve their competence and capability to anticipate, appropriately assess and adapt to or mitigate the consequences of existential threats rising from uncertainty.
Many of the lessons observations and conclusions that we have written and spoken about are now being demonstrated with brutal effect by the Covid-19 (SARS-CoV-2 coronavirus) pandemic.
The characteristics of complex adaptive systems
The globally connected technological, economic, social and political environment we all inhabit is a vast Complex Adaptive System (CAS). This matters because many of the assumptions that governments, businesses and individuals make about the future assume relative stability with variations about quite stable means, that is a normal distribution of variation. The reality in a CAS world does not confirm to these assumptions. CAS exhibit dramatic shifts from apparent stability to near chaos, caused by physical, informational and emotional feedback loops. CAS exhibit exponential not linear changes or growth patterns. The occurrence of “long-tail” or extreme and (by most) unexpected events, is a feature of this global CAS.
The Covid-19 outbreak has perfectly demonstrated all of these characteristics. The shift from an apparently stable economic order to a shuddering halt to global economic activity has occurred within weeks. Within the business community organizations both very large — e.g. car makers, aerospace and airlines — and very small — local stores, the self-employed — have been affected.
The rates of infection among populations where the virus has spread all show exponential patterns of growth; infection rates typically doubling every three days: 1 infected victim can become 1,000 in a month, a million in two, left unchecked. Such exponential rate of change is beyond the experience or capability of the typical bureaucracy grappling with a response.
The very interconnectedness of the global economy has produced dramatic ripple effects across geographies and sectors even before the virus hit locally. In one example, shortly after the outbreak was announced in China, a retail outlet complex in the UK, Bicester Village reported an 85% fall in revenues. Why? Because it was a favourite for Chinese tourists who were no longer travelling. The knock on effects included the train operator whose station announcements in Mandarin, to help the visitors, became redundant at about the same time as their passenger numbers plummeted on the line between London and Bicester.
The need for purposeful anticipation
The characteristics of CAS make forecasting very difficult, but the consequences in terms of Strategic Risk and existential threat mean that they cannot be ignored. Indeed, a CAS environment increases the need to purposefully anticipate such threats. We often refer to this as a requirement for “Searching the Realm of Ignorance”. That is, trying to answer the question: what are the plausible causal narratives that could lead to our (corporate) extinction?
Another way of looking at this process is to consider how to improve strategic warning and avoid harmful surprise. History shows us that warnings are frequently given and just about as frequently ignored. Paying heed to “credible Cassandras” is one way of avoiding becoming blind to a potential existential threat.
Again, the Covid-19 outbreak is illustrative. The Centre for the Study of Existential Risk, at Cambridge University, which comfortably satisfies the criteria for being a “credible Cassandra”, has, for some years, identified a global pandemic as one of the top five existential threats humanity faces*. But even if this was too generic an alarm to be heeded, other warnings were raised.
In its November 2012 analysis of alternative future scenarios (Global Trends 2030: Alternative Worlds), the US National Intelligence Council wrote: “An easily transmissible novel respiratory pathogen that kills or incapacitates more than one percent of its victims is among the most disruptive events possible. Unlike other disruptive global events, such an outbreak would result in a global pandemic that directly causes suffering and death in every corner of the world, probably in less than six months.”
In the UK, professor of global public health, Devi Sridhar, described a similarly prescient scenario as recently as 2018. Professor Sridhar addressing a conference stated that “The largest threat to the UK population is someone in China being infected from an animal. Then they get on a plane to the UK”.
Health authorities in the US and the UK explicitly recognised the scenario of a global, flu like pandemic. In October 2016, epidemiologists from Imperial College London told Government ministers what Britain would look like seven weeks into a pandemic. “Exercise Cygnus” showed the NHS unable to cope, with a lack of personal protective equipment (PPE) for doctors and nurses, inadequate numbers of ventilators and mortuaries overflowing. (This report was never published and, as far as we know, no action was taken on its findings.)
In the US, “Crimson Contagion”, a classified exercise led by the US Department of Health and Human Services in 2019, tested the capacity of the U.S. federal government and twelve U.S. states to respond to a severe influenza pandemic originating in China. The conclusion of this exercise outlined the US government’s limited capacity to respond to a pandemic, with federal agencies lacking the funds, coordination, and resources to facilitate an effective response to the virus. It predicted that in less than two months a virus could infect 110 million Americans, killing more than half a million. There had also been clear warnings in the US from other sources in 2017, 2018 and another in 2019**.
Thus, it can be argued that sufficient warning of the Covid-19 pandemic or something very similar to it existed. Yet even without warnings as specific as those above the occurrence of a global pandemic was not something immune to anticipation. Being aware of “base rates” of events that can represent Strategic Risk is high-value information in terms of avoiding damaging strategic surprise. In fact, the “base rate” of occurrence of a major global pandemic is around 20–30 years***. The last major outbreak of a high-contagion, high-mortality rate coronavirus, SARS-1, was at the turn of the century. In 2016 the WHO identified this coronavirus as a likely cause of a future epidemic. We know that viruses are prone to mutation. It should not have been a surprise that a new form of dangerous coronavirus, of animal origins (the virus causing the Covid-19 outbreak is called SARS-CoV-2), represented an existential threat.
Even without this plethora of warning and base rate data, governments around the world might have reflected on the number of viruses in birds and animals that have the potential to cross the species barrier, which may be as high as 800,000. according to one estimate****.
In other words, no one should really be surprised at the Covid-19 pandemic. Yet, palpably governments and businesses around the world have been. Some of the blindness to this threat may become explicable by understanding the paradox of surprise: The greater the risk, the less likely it seems, and the less risky it becomes. Human cognition treats rarer events as less and less realistic, eventually to the point of becoming persuaded that such events are, in practice, impossible.
Countering the cognitive biases that influence decision making by policy makers and business leaders about Strategic Risk and existential threat is not a matter that can be left to happenstance. It requires processes that are explicitly designed and implemented to avoid the worst anticipation failures.
The key issues in assessment
It’s possible that some governments or businesses did accurately anticipate the threat from a global pandemic. If so, it is highly unlikely that they assessed the threat appropriately. The UK government’s panel of scientific advisors decided that the risk from Covid-19 to the UK was “moderate” as recently as 21February (source: The Times). It is not known how the government was supposed to use this information to guide its policy or mitigation actions.
There is a practically universal dogma practiced in relation Strategic Risk and existential threat, which is to treat it as directly analogous to throwing dice. A moment’s reflection should be sufficient to realise that the “standard” risk assessment of probability times impact is wholly inappropriate. Time, not probability, is the critical factor.
Two estimates of time are relevant: the Time to Event Threshold (TE), or how long will it be before calamity strikes and the Time to Implement (or first define and then implement) adaptation or mitigation options (TM). If the first of these is less than the second then the probability of occurrence is of no interest or value to decision makers, because if the threat materialises there is insufficient time to mitigate. Some of the advisors who decided that the risk from Covid-19 was “Moderate”, were the same who predicted that the NHS would be overwhelmed in seven weeks; one wonders at what point they were contemplating raising their assessment, if ever. If TE is genuinely greater than TM then there exists a Safety Margin — so long as nothing changes!
This concept of the Safety Margin is the really critical and hugely overlooked assessment objective for Strategic Risk. Again, the Covid-19 pandemic starkly illustrates the consequences of assessment failure. The current policy of most Western governments in bringing their economies to a dead stop is with the explicit intention of slowing the disease spread to allow time for mitigation measures to be ready, i.e. for health care systems not to be swamped with victims, having sufficient beds, equipment and trained (and healthy) personnel to be able to cope as the number of critically ill victims reaches its peak. In other words, these governments are striving to get TM below TE ; to get the Safety Margin positive.
It is hard to imagine a clearer or more dramatic example of the criticality of understanding the dynamics of Time to Event Threshold compared with Time to Implement Mitigation, in other words, the critical importance of understanding Safety Margin dynamics. It’s worth noting that, however thoroughly analysed (and most are not) assessments of probability done once a year (or less frequently) are of limited value anyway before an existential threat materialises (fancy betting on imminent death anyone?) and no value whatsoever if the threat materialises in fact. The Safety Margin on the other hand, if properly analysed and appropriately used, can be of great value before and after a threat materialises and throughout mitigation activity.
Basic capabilities for adaptation
Even if Covid-19 or a similarly dangerous outbreak had been successfully anticipated and appropriately assessed; failures in adaptation could still have undermined all the good work. The first task is, as a result of properly assessing the Strategic Risk, to be monitoring high-value, leading warning indicators of the potential threat becoming an actual threat. In the case of a global pandemic, the potential threat should have been clear. It is less clear whether the indicators of a new outbreak were being heeded. It might be argued that there were no leading indicators in the case of Covid-19. Yet somehow the government of Taiwan was able to take mitigation action much, much sooner than most other countries. We can speculate as to why, but a possible explanation is that, following the SARS-1 outbreak of 2002–3, Taiwan had both anticipated the threat of a new outbreak in mainland China, and was actively monitoring reports from there. As early as December 2019, Taiwanese health officials were boarding flights from Wuhan to check the passengers for symptoms (source: The Economist). This exercise itself would have served as a key warning indicator.
Another feature of Taiwan’s approach was to have developed strategic options or possible mitigation actions in advance — e.g. knowing how to rapidly increase availability of both ITU beds and have reserves of trained personnel; having put in place alternative sources of supply of ventilators before being overwhelmed by demand. Taiwan was able to very rapidly ramp up testing because they were ready to do just that. They had also put in place an organisational response, the Central Epidemic Command Centre (CECC), usually dormant, which was ready to be activated when the warning signals were flashing red. Contrast this with the scramble of the UK government (among others across Europe) to substantially increase the supply of critical equipment several months after the outbreak was undeniable.
Once a Strategic Risk has materialised as actual threat (or the assessed Safety Margin approaches zero), the ability to rapidly and effectively implement mitigation is key to survival — whether corporate or citizen. Taiwan, a country of 24m people has reported just 2 deaths from Covid-19. Contrast this with London, a city of c.9m on the other side of the world from the source of the outbreak which has to date ***** reported 246 deaths.
Successful adaptation in the face of the threat from Strategic Risk may rely on several factors but one of the most important is resilience: how fast can an organization or society respond to a negative event. This will be of acute relevance for national economies following the halting of activity in response to Covid-19. Resilience is a function of several interacting factors, including maintenance of resource reserves, organizational problem detection and problem solving capabilities, structural choices (e.g. incident management teams). For example, Taiwan’s effective response owes something to the establishment of the CECC.
Clearly building resilience takes resources. For example, maintaining reserves of ventilators in anticipation of an outbreak of a deadly, flu like respiratory disease would have required investment. Investing in adaptation in the face of Strategic Risk always will be seen as diverting resources from investment in success. Yet it is relevant to ask whether the cost of maintaining a national (or international) security stock of ventilators have been greater than the havoc now being wrought on economies around the world?
Such decisions are not trivial. Yet they are not even available as an option unless decision makers have successfully and appropriately anticipated, assessed and adapted to Strategic Risk. That will remain the harsh lesson from Covid-19. Let us hope that, this time, it will be learned.
* see https://www.cser.ac.uk for the other four!
** “Before Trump’s inauguration, a warning”, Politico 16Mar20; Foreign Policy, 28Sep18, Lisa Monaco; “Event201” run by the Johns Hopkins Center for Health Security, the Bill and Melinda Gates Foundation, and the World Economic Forum
*** Since 1900 there have been six flu-like global pandemics, including Covid-19, excluding H5N1 Bird Flu and other non-flu contagious and mortal diseases such as Ebola.
**** Ed Yong, The Atlantic, July-August 2018
***** 27th March 2020.