It is a virtual mantra in the universe of political analysis that “business doesn’t like uncertainty”, and it is true that declining consumer spending, increasing fuel costs, squeeze profits and that in some cases, businesses worry about changes to the regulations they must follow. But uncertainty is the nature of an evolving global economy, and with the accelerating pace of innovation, doing any business well is going to require dealing intelligently with uncertainty.
“Uncertainty” is also, in many cases, a code-word for an aversion to paying taxes. And there are implications there, in that contest of ideas, that are more real and far-reaching than the metaphorical back-and-forth of the rhetoric involved. An out-of-balance system of taxation puts pressure on ordinary people, and breeds uncertainty. Yet some of the world’s largest enterprises continue to push for ever-expanding tax reductions, calling those guaranteed revenues “certainty”.
This is not a healthy marketplace. This is not a democratic marketplace. This is not conducive to fostering the kind of innovation and creative thinking that allows an enterprise to deal with uncertainty. Access to information is the most important tool for anyone who has a significant challenge involving questions of certainty or uncertainty. Yet markets are slowed and restrained by blockages in the flow of relevant information.
During the 1998-2008 period, in which subprime mortgages, and eventually the toxic and inviable derivative investment funds built on bundled subprime mortgages, clear information about what kind of real financial products (the particular mortgages) were being used to underpin and fill out the derivatives, which ultimately had much higher professed market value, was often not available to investors.
Meaningful facts were obscured, which created irrational investments, and widespread toxicity in financial markets. This had a direct impact on the way government money, including bonds and borrowing, was used in relation to private investment, and ultimately cost taxpayers trillions of dollars in emergency investment, much of it still being paid back. Efforts to make it easier to extract profits where they are not always justifiable, given real value to the market, can give certainty to some, but breed massive uncertainty elsewhere.
So, transparency must be a key value in a healthy 21st century economy. Constructive transparency, that allows entrepreneurs and investors to recognize, plan for and deal intelligently with uncertainty that might penetrate into their domain. In order to build a healthy, cutting-edge, competitive, intelligent economy for the 21st century, we need to privilege the kind of thinking that will achieve those ends. Aversion to innovation, change, competition and evolutionary planning, will not achieve that.
In order to achieve a balance of resources that lends itself to dealing ably with uncertainty, businesses need to have the flexibility and creativity to adjust, to renew their market position, to fund intangible values that shore up the human intelligence that drives their enterprise.
A few examples:
From Coal to Clean: Coal companies, for instance, may find “uncertainty” in the 21st century energy economy, as their main resource falls out of favor and the efficiency of clean resources catches up and rushes past their business model. They can start planning to use the efficiencies currently inherent in their business model to plan the transition they will need to fund in order to diversify their portfolio and be relevant in the post-coal era.
Print and Pixels: The press have done extremely well, for over two centuries, in North America, driving the democratization of society throughout, and informing people about their world. But print publications are struggling to harmonize their operations with online technology. That harmony may come from bold new experiments in crafting virtuous feedback loops between print and pixels, so that the use-value of each to readers expands the publication’s readership, building in a community to the publication’s business model.
Transparency ROI: The release of information that might normally be considered proprietary, or which commercial enterprises might prefer not to reveal, can pay significant dividends. Doing business with a forthright and trustworthy partner is worth a lot more to most people than an off-chance at getting a bargain. Building trust in the age of globalized online spin and the mischief some associate with impersonal, remotely managed services, can be the basis for a booming business, offering consumers shelter from uncertainty.
Adversity is Opportunity: There are times when sudden cost shifts threaten to impact the bottom line. If there has been insufficient planning, or revenues are too scarce, that can be an existential threat to a business. But an existential challenge can also be an opportunity to rapidly turn a slow, weighty ship of method, using the turbulence of the surrounding seas to nudge the bow in the right direction.
In the 1990s, Starbucks responded to a South American frost and tripling of wholesale coffee prices by agreeing to contract with producers for double the prior market price, knowing the market price would fall below their contract. They built into their contract requirements for quality and for quality checks that allowed them to get far more value out of their higher payments than the increase itself. They came out ahead and were better equipped to build a reputation for consistently high quality coffee.
Uncertainty is important, because it is not always what it seems. The instability it seems to suggest can also be an opportunity for growth, evolution, innovation. And a shifting landscape of influence and competition can allow for concurrent evolutions and innovations that support and sustain one’s own new models and methods. Learning to thrive in this more interconnected, more challenging environment is integral to planning a viable business in the 21st century, whether large or small.
Diversity of resources and of opportunity must be one of the assets built into any successful enterprise, along with the intellectual and strategic agility necessary for keeping afloat in periodically rough seas. Technology facilitates such adaptation, but the ability to invent new responses to problems one could not foresee must also be part of one’s tool kit.
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Originally published July 23, 2011, at TheHotSpring.net