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  • Knowledge about change trajectories is crucial to long term business and risk management strategies
Articles:

Knowledge about change trajectories is crucial to long term business and risk management strategies

18 October 2019

The pursuit of short term strategies and objectives has become endemic in the business world - not only in South Africa, but also in the rest of the world. Regrettably, this propensity to focus on the short term (including short term profits / the monthly or quarterly bottom line) is also to be found in the risk management field. It is obvious that a short-term focus on strategy would, ipso facto, impact on the risk management ethos of a business. It also goes without saying that any short-term focused risk management philosophy would be predisposed towards the identification of short-term contextual signals (including warning signals /risks); in other words, too much focus is placed on the identification of micro events or ‘noise’ in the contextual environment.

An example of this reliance on short-term signals can be found in the South African Chamber of Commerce and Industry’s business confidence index. South Africa avoided a downgrade to junk status in December 2016. As a result, business leaders were rather optimistic about the economy in February 2017 - more than they were in the fourth quarter of 2016. But since President Jacob Zuma’s Cabinet reshuffle in March 2017, and the subsequent rating downgrades that followed in April 2017, business executives’ mood was significantly down again.

This never-ending ‘seesaw’ between short term business optimism and pessimism eventually impacts on business strategy and its associated risk management strategies. It produces organisational short-sightedness. Therefore, in most businesses an urgent need exists for a combination of short, medium and long term strategies - including risk management strategies. The application of futures thinking / futures research (which is normally the domain of Futurists) could lend a hand to create long term strategic horizons and paint or create the bigger risk picture / profile. In order to do exactly that, a proper methodology is indispensable in suspending the noise (micro events) in the contextual environment - so as to identify the macro patterns / pictures and long term trajectories of developments (i.e. the underlying and deeper mechanisms or tectonic plates of change in a society). The application of Futures Studies allows for the use of macrohistory (or, an alternative term would be the macro patterns in change [1]). So, what is macrohistory?

Macrohistory is a study of change in social systems through time, not in time; it is concerned with the historical development of a subject through a long period of time - not with a subject as it existed at one point in time. Macrohistory is therefore concerned with the history of social systems through centuries, since the epoch of the human race. Macrohistorians’ studies cover long periods (diachronic data), focusing on the identification of striking or grand patterns / regularities / laws in the histories of social systems (hidden in a massive amount of historical data), not on the endless number of dissimilarities and micro (“some little region in space”) historical events (synchronic data). In other words, macrohistorians are not interested in the ‘noise’ in the media. Macrohistorians have a tremendous appetite for ambiguity in their quests to suspend all dissimilarities and to identify the underlying mechanisms of change. It is a phenomenal feat and intellectually difficult - hence the small number of macrohistorians in the entire human history.

According to Inayatullah (2004: 7) it is important to understand that “macrohistory does not predict the future per se but questions patterns…” [3]. Inayatullah then continued by stating that “without macrohistory the future remains fanciful, and overly based on the new influences of new technologies… the future becomes overly idiosyncratic, what individuals currently feel, instead of based on the evolutionary life cycles of collectivities”. Therefore, by also focusing on the macro patterns of change, decision-makers can gain more insight into the probable long term shape of risks (and, of course, opportunities). It is important to differentiate between the roles of micro- and macrohistory. Microhistory events tend to be muddled and do distort perspectives, while macrohistory patterns provide more stable, and long term, views about probable futures and risks. These patterns did and still do occur, and cut across centuries of human history, and they are therefore more reliable to enlighten decision-makers about long term future images.

Macrohistory patterns can therefore be used as the ‘acid-test’ to test the underlying assumptions of business and risk strategies. Macrohistory can be applied to contextualise events and trends by using identified and well known macro patterns in change (more or less 20 to 30 known patterns were identified so far). For example, by understanding these patterns, a strategist is in a better position to understand the long term trajectory of a country or a business and can therefore be in better position to invent creative alternatives or to even escape a pattern’s mechanisms; in other words, macrohistory does not insinuate that history is deterministic. Many macrohistorians did allow for an ‘escape clause’, from their identified patterns, via the human agency (the ‘vanguard of leadership’), and can therefore not be accused of deterministic views on the future. History, and especially macrohistory, should not be seen as constraining strategists, but should alert them of the given weight it carries, and how it could impact on their normative, preferred images / strategies of the future. From a risk management perspective it is important to understand these patterns and how to respond to these long term risk trajectories.

For example, Arnold Toynbee [2] was one of the most famous macrohistorians in history. He wrote volumes on the rise and decline of civilisations; a theory of history which can also be applied to business or risk strategy. To summarise his work in a few paragraphs is to do injustice to his work. But in summary Toynbee made it clear that a civilisation (or a business, for that matter) will be on the rise when there is a creative minority, “responding in an appropriate manner to the challenges of the environment” (and, of course, “environment” is a broad term which includes the physical environment and human-made eco-systems / contextual environment, like economic, political, social systems etc.). But it is not only about the creative minority. Such a creative minority should also have the support of the internal (internal citizens) and external (citizens of other countries) “proletariat” or majority. Without the majority’s support, there would be no successful “appropriate response”. So, from a macro pattern perspective, South Africa could ‘test drive’ identified trends and emerging issues, as well as assumptions about the future, against Toynbee’s trajectory of history in order to answer the question whether or not the desired image of the future (e.g. a prosperous economy for all) is realistic (and what changes should be made to achieve this vision). Macro patterns alert decision-makers about the probable shape of the future as well as the barriers and required conditions to the envisioned change. If Toynbee’s pattern is applied, a prosperous economy would not be achievable if there is no creative minority. But even more important, if this minority / leadership does not have the support of the majority of its citizens, no long lasting solutions would be possible.

A good example is the 2017 re-elections in Kenya; the question should be asked: “Does the ruling elite have the support of the majority if the voter turn-out was between 30 – 40%?” What does it say about the probability of the desired image of the future for Kenya as one nation state? And what can the elite do to change this (i.e. exercising the power of the human agency to escape out of the declining pattern)?

But the same can be said about South Africa. It is a known fact that the voter turn-out decreases with every election - i.e. the majority, supporting the minority, started to withhold their support in increasing numbers (and it is forecasted that this trend will continue over the next ten years). Furthermore, it is not only about the internal majority’s support. Toynbee also indicated that a creative minority should have, at least, the tacit support of the external majority. In other words, one should ask the question whether or not the rest of Africa is still looking up to South Africa for leadership. If not, it might be an indication that South Africa’s leadership role in Africa has diminished. In such a case it would also serve as a signal that South Africa has no creative minority.

Furthermore, by understanding Toynbee’s macro pattern or trajectory of history, any South African business should ask some strategic questions. “Does South Africa currently have a creative minority and, if not, what does it mean from a risk management perspective?” “Would this trajectory continue into the future or are there signs of long term change - i.e. that a creative minority is in the making and that the majority would support them?”

And if South Africa is on a long term trajectory of decline, South African businesses would have to adjust their strategies; for example, to just name a few points:

  • As the pool of employed people shrinks year after year, so would the demand for the products and services. Socio-economic decline would carry on (and the middle class would keep shrinking). The focus would be more and more on life and bread issues (and products / services).
  • Business growth would have to come from somewhere else - i.e. beyond the borders of South Africa.
  • However, by acknowledging that South Africa is on the decline, would not exempt the business world from getting involved in solving the problem. South African businesses have been avoiding this responsibility since 1994. Government cannot address social inequality on their own. The business community will have to contribute to the process by creating the leaders of the future.

However, Toynbee’s pattern (and, for that matter, any macrohistorian’s pattern) should also be applied to the internal business landscape. Yes, indeed, macrohistory is relevant to business and risk strategies. It is of the utmost importance to understand the long term trajectory of a business too. The crucial question, from Toynbee’s perspective, is whether or not there is a creative minority in the business. And, if the answer is yes, the next question is if this minority have the support of the majority in the business (i.e. all stakeholders, from the shareholders right through to the most junior person in the business). Depending on the answer, the business would either be on the rise or decline. And if a business is on the decline, the crucial conundrum to be solved (in order to escape the decline process) would be how a creative minority could be established who would be able to respond in an appropriate manner to the challenges of the environment. However, Toynbee made it clear that the creative minority is characterised by their organic (natural / spontaneous / unforced) responses to the challenges of the environment. Any “merely ritualistic and routine, response” to the environmental challenges would result in a decline. Thus, it would be essential to identify a leadership who would be able to come up with creative strategies, igniting the support of the majority.

To conclude, there are more macro patterns to be considered than just Toynbee’s pattern. Unfortunately, macrohistory is not always popular among business leaders and politicians - due to the fact that a macrohistorian ignores details – e.g. national heroes’ names. “They are washed out by the tide of forces and mechanisms” (Galtung, 1997a: 5). Macrohistory ignores the wishes or interests of all parties – e.g. it will not promise a business or political party unlimited progress. Leaders and politicians would therefore hate macrohistory theories – especially if their businesses or parties are set for a decline. Regardless the macrohistory theory promoted, it could be a cyclical or linear macrohistory pattern, at some time in the future there will be doom and gloom or a downward slope. Tragically, by ignoring the (unpleasant) messages of macrohistorians, business leaders set themselves up for failure; ignorant of the bigger picture and deep underlying patterns in change - ultimately responsible for present-day trends. The view from the top of Table Mountain affords different perspectives on Cape Town than the view from the foot of Table Mountain. Macro perspectives provide long term clarity, horizons and results.

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