{"id":111820,"date":"2020-04-27T14:00:00","date_gmt":"2020-04-27T19:00:00","guid":{"rendered":"https:\/\/www.dacgroup.com\/radical-uncertainty-in-business-and-how-to-deal-with-it-2\/"},"modified":"2024-12-21T05:52:39","modified_gmt":"2024-12-21T10:52:39","slug":"radical-uncertainty-in-business-and-how-to-deal-with-it-2","status":"publish","type":"post","link":"https:\/\/www.dacgroup.com\/en-gb\/insights\/blog\/strategy\/radical-uncertainty-in-business-and-how-to-deal-with-it-2\/","title":{"rendered":"Radical uncertainty in business and how to deal with it"},"content":{"rendered":"

Murphy’s Law tells us that “anything that can go wrong, will go wrong”. But it doesn’t tell us the day, hour, or minute the disaster will actually occur, creating great uncertainty. This is true for a pandemic or for the bursting of a speculative bubble. We do not know when they will happen.<\/p>\n

When uncertainty is based on a singular event\u2014such as a “black swan”, as we will explain\u2014this uncertainty becomes a serious obstacle. Economist John Maynard Keynes talks about radical uncertainty and defines it as a situation where “we simply don’t know”, which in turn echoes Socrates’ “I know that I know nothing”. But it doesn’t prevent us from doing something<\/em>. On the contrary, it encourages us to organise ourselves to better adapt to the post-crisis period.<\/p>\n

So let’s create order from disorder. Based on the product life cycle model, a crisis can be said to consist of four distinct phases:<\/p>\n

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  1. \n

    Pre-crisis: Life is a long, calm river…<\/h3>\n

    The lines are clear and defined, the movements and behaviors of the actors (companies, consumers) are long term. Strategies and uncertainties are defined on the basis of past data and events. The American economist Frank Knight indicates that it is often possible to mitigate risk\u2014for example by means of an insurance contract\u2014to cover oneself during the relative stability of this phase.<\/li>\n

  2. \n

    A crisis or a “black swan”?<\/h3>\n

    In 2007, the French-American-Lebanese statistician Nassim Nicholas Taleb defined the “black swan” as an event whose occurrence was not foreseen and which has a significant impact on the course of history. September 11 is an example of the black swan. COVID-19 may be another.<\/p>\n

    \"Arch<\/p>\n

    During a crisis of the magnitude of a black swan, companies must instantly adapt to behaviours that are sometimes the polar opposite of established norms. It is a question of survival because, according to an accelerated Darwin’s law, companies that do not adapt or that are not sufficiently subsidised or financed disappear, generating a vicious circle: unemployment, drop in consumption, company bankruptcy.<\/li>\n

  3. \n

    The shock wave and the post-crisis period<\/h3>\n

    Economic psychology then comes into play. As people seek to deal with their trauma and reassure themselves, this phase will result in unusual behaviour exacerbated by the desire to resist the new normal<\/a> and return to the old normal. Consumers being non-rational beings\u2014as Herbert Simon, Nobel Prize winner in 1978, demonstrated\u2014consumption will resume because it acts as a refuge (at least for those categories that have retained sufficient purchasing power). Luxury is an example of this.<\/p>\n

    To illustrate this shock and rebound, Goldman Sachs bank has published its forecasts for quarterly growth in the US in 2020: -9% in Q1, a historic fall of -34% in Q2<\/a>, and an equally historic rebound of +19% in Q3.<\/p>\n

    \"Herm\u00e8s<\/p>\n

    Another example of this irrational behaviour: the luxury brand Herm\u00e8s is said to have brought in at least $2.7 million in just one day at its Guangzhou flagship store<\/a> when it reopened early in April.<\/li>\n

  4. \n

    New behaviors and new opportunities<\/h3>\n

    Stanford professor Nicholas Bloom said in a 2014 paper that uncertainty is damaging “to short-term investment and employment” but that it can “stimulate innovation in the longer term”. Similarly, the US venture capital fund Sequoia said that many of today’s most successful companies had emerged during crises<\/a>, including Google (internet bubble) and Airbnb (financial crisis).<\/p>\n

    The pandemic will also change consumer behavior<\/a>. For instance, economics professors Nathalie Moureau and Doroth\u00e9e Ribaud-Danset explained that in the face of uncertainty, individuals often either opt for imitation\u2014adopting the position of others whom they assume to be better informed\u2014or default to a wait-and-see attitude, postponing their decisions while waiting for new information. It is therefore important for brands to maintain a link with consumers in order to re-initiate pre-crisis purchasing habits (or adapted versions of them) as quickly as possible. After all, a loss of notoriety will be difficult if not impossible to make up for when normal life resumes.<\/li>\n<\/ol>\n

    “All I know is that I don’t know anything… but I have to get organised”<\/h2>\n

    To address this uncertainty, prepare for the recovery phase, and keep building on long-term strategies, we propose a simple four-step framework:<\/p>\n

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