Last week had the opportunity to read the most recent Global Risks Report 2018 from the World Economic Forum. Overall, this is a highly informative report and I particularly like its emphasis on potential future shocks and resiliency in complex organizations. In regards to the key risk concerns, there has been a clear shift over the last 10 years from when economic and financial-related risks ranked highest from a likelihood and impact perspective to today, when the majority or risks are of the environmental and technological kind. Especially, the stats and outlook in regards to environmental risks are highly worrisome. In addition, I picked out a few observations, which are worthwhile to keep in mind:
• Vulnerability to Systemic Risks: The report highlights how – in general – effective we have become isolating and managing conventional risk issues through standard approaches. However, dealing with complex risks, characterized by feedback loops, tipping points and opaque cause-and-effect relationships is becoming increasingly difficult. Network effects, various forms of interconnections and increased complexity, make it almost impossible to isolate key risk issues. Resilient organizations recognize the limitations of forecasting future shocks and prioritize structural, integrative and transformative resiliency priorities. These organizations focus on systemic dynamics within the organization itself, such as modularity and redundancy, mapping the interconnection with their external context and embrace "transformation" through foresight, with tools such as scenario planning.
• Economic Storm Clouds: While economic risks have been declining, the report highlights the risk of unsustainable asset prices and increased indebtedness as well as emerging risks, such as limited firepower by policy-makers, technological disruption and protectionism. While we have seen more volatility lately, the report emphasizes how sanguine financial markets have remained while political and geopolitical risks have jumped in recent years. I do believe that systemic risk in this space may be underappreciated.
• AI Weeds: The report had a short and maybe provocative section on the adverse impacts of artificial intelligence, referred to as "AI weeds", which are low-level of algorithms that slowly choke off the internet. Especially in thinking about the exponential growth potential of these algorithms, this could have serious implications to mobile and online business infrastructure and models. While this risk today may be considered a black swan or "unknowable" event, business strategies will need to contemplate the implications of this phenomena going forward. As business models increasingly shift into the digital space, much greater attention will need to be paid to how the overall technology "environment" and infrastructure evolve.
The report had a worrisome section on our planet on the brink. Mind-boggling statistics around billion-dollar disasters, species decline, air pollution, food supply, plastic waste and CO2 emissions, clearly demonstrate that global efforts to combat and deal with these increasing risks are not sufficient. It is clear that further degradation will have increasing implications on all businesses and organizations.
One of the key conclusions I drew from this report, is how paramount and critical it is for an organization to have a strong handle of its internal risk profile. To remain competitive and deal with the extraordinary complexities presented by the external environment and various global risk issues, effective management of the internally created risks is non-negotiable. If an entity is preoccupied with its internal issues, it will have a much harder time understanding the implications and impact of these global risks. It is also clear to me that the only way these larger, global risk issues are being mitigated, is through increased cooperation, partnership and knowledge-share between different firms, organizations and countries. Increased "state-centered politics", also highlighted in this report, may make this even more challenging. Here is a link to the report: https://www.weforum.org/reports/the-global-risks-report-2018