Our recent columns explored how Paul O’Neill and Stanley McChrystal used institutional learning systems to better manage risk and optimize performance. Emerging science confirms their approach and the need to develop more leaders who can see the future of risk management.
- John Ruskin, Modern Painters, Vol III, part IV, chapter XVI (1856)
We think business leaders would benefit if they viewed their risk management work as a calling to help their organizations evolve into distributive networks that existed at Alcoa under Paul O’Neill or the Joint Special Operations Force when led by Stanley McChrystal. We intentionally use the word “calling” because O’Neill and McChrystal conveyed a strong conviction beyond what we ordinarily witness in the field of risk management. These leaders helped others see the world differently.
John Ruskin, a leading English art critic, prominent social thinker and philanthropist of the 19th century, focused on how leaders help people see the world as they have never seen it. Here is a passage from Ruskin’s writing that makes the point:
Let two persons go out for a walk; the one a good sketcher, the other having no taste of the kind. Let them go down a green lane. There will be a great difference in the scene as perceived by the two individuals. The one will see a lane and trees; he will perceive the trees to be green, though he will think nothing about it; he will see that the sun shines, and that it has a cheerful effect, that the trees make the lane shady and cool; and he will see an old woman in a red cloak -et voila tout! (and that is all he will see!).
But what will the sketcher see? His eye is accustomed to search into the cause of beauty, and penetrate the minutest parts of loveliness. He looks up, and observes how the showery and subdivided sunshine comes sprinkled down among the gleaming leaves overhead, till the air is filled with the emerald light, and the motes dance in the green, glittering lines that shoot down upon the thicker masses of clustered foliage that stand out so bright and beautiful from the dark, retiring shadows of the inner tree, where the white light again comes flashing in from behind, like the shower of stars; and here and there a bough is seen emerging from the veil of leaves, of a hundred varied colours, where the old and gnarled wood is covered with brightness, - the jewel brightness of the emerald moss and the variegated and fantastic lichens, white and blue, purple and red, all mellowed and mingled into a garment of beauty for the old withered branch. Then come the cavernous trunks and the twisted roots that grasp with their snake-like coils at the steep bank, whose turfy slope is inlaid with flowers of a thousand dyes, each with his diadem of dew; and down like a visiting angel, looks one ray of golden light, and passes over the glittering turf – kiss, - kiss, - kissing every blossom, until the laughing flowers have lighted up the lips of the grass with one bright and beautiful smile, that is seen far, far away among the shadows of the old trees, like a gleam of summer lightening along the darkness of an evening cloud.
Is not this worth seeing? Yet if you are not a sketcher or a rhymer - you will pass along the green lane, and when you come home again, have nothing to say or to think about it, but that you went down such and such a lane.
Today, cognitive science (the interdisciplinary study of how the brain and nervous system process information) supports the need for business leaders to look at risk management with an awakened eye – in the same way that O’Neill and McChrystal became aware that the most powerful risk management approach is collaborative. Recent developments in cognitive science confirm that most people understand less about the world than they think they do and the biological basis for this phenomenon.
In their new book entitled The Knowledge Illusion, Why We Never Think Alone (2017), Steven Sloman (a professor at Brown and editor of the Journal Cognition) and Philip Fernbach (a professor at the University of Colorado’s Leeds School of Business) explain that people have a superficial understanding of their environment because of how the brain evolved. Our brain is wired to determine the best course of action in any given situation by extracting the most useful and important information from every phenomenon we encounter. Our brain then abstracts this information into general principles which manifest themselves in habitual emotional reactions and learning short-cuts that we apply to new situations.
A key component to this process is that our mind ignores details that it deems unnecessary to making a decision or choosing a course of action. In other words, our mind does not work like a computer; the brain doesn’t compile massive stores of data to build a system from which to calculate the best response to a situation. In fact, if we had a clear picture of the countless variables we don’t know or understand, we would be incapable of making any decision or performing any task. What has given homo sapiens the edge over all other animals is our ability to think together in groups. In fact, we rely on the expertise of others for almost our needs.
Think about everyday life. Our friends, relatives and colleagues have their respective areas of know-how. We rely on others to fix appliances, fly an airplane, or in my case - save my life twice through open heart surgery. This combination of individualized habitual thinking and communal knowledge is what enables to go through life without being trapped in a hopeless effort of understanding everything ourselves.
The risk in all of this is two-fold. First, we are unaware of our own knowledge limitations and societal efforts to better inform people doesn’t necessarily increase recognition of what we don’t know nor equip us to know when to consult other people who have more or different knowledge. Our brains are hardwired to not want or like too many facts and to depend on communal knowledge. Second, the quality of our communal knowledge is inherently flawed, and, if we are not careful, group loyalty (often driven by a fear of feeling or looking ignorant) can lock us into an echo chamber of like-minded people and self-confirming newsfeeds, thereby producing the risks of a herd-mentality or tribalism. Unchecked, these undesirable forms of communal knowledge have produced adverse risks ranging from stock market bubbles to ethnic violence and genocide.
The solutions proposed by Sloman and Fernbach mirror Alex Pentland’s work on social physics (last month’s column). We need to get better at helping people develop high rates of engagement and exploration within and outside their groups or teams. Effective risk management doesn’t mean forming working teams of individual geniuses. Instead, effective risk management teams will be comprised of individuals with a diversity of skills and experiences. Teams that excel at risk management will be comprised of people who understand other people’s viewpoints, know how to take turns, listen carefully to one another, and empathize with other people’s emotional responses. In sum, the future of risk management depends on whether business leaders will approach the subject with an awakened eye.