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VUCA and Portfolio Executives: Part Three – Uncertainty
The ‘C’ of VUCA is complexity. Complexity arises from multiple moving parts. The traditional approach separates each part and develops an understanding of its behaviour before addressing the whole system. But other things start to emerge in a world of complexity.
Chaos
In a world of complexity, chaos theory may dominate. A slight deviation can bring you into a different paradigm. You can’t live in a world where you’re assuming linear or exponential transition. At those inflexion points, new things happen.
I fondly recall my time working for JP Morgan, where we used an incredible risk metrics tool. It was designed to help us understand the intricate world of financial instruments through the lens of Brownian motion principles (how a gas randomly giggles smoke particles under a microscope based on the temperature of the gas!). This approach meant we would predict future volatility based on past patterns and that the fluctuation of volatility would also tend to follow previous patterns.
So they created this hierarchy of what they called Greeks, where they looked at the rate of change and even the rate of change of the rate of change of the rate of change, to try to build an understanding of the complexity.
However, when the inflexion point of the 2008 financial crash happened, all of those models were undermined by what they then called a Black Swan event.
Clarity
If they had been fully committed to pursuing clarity, they might have dug deeper to understand what was happening with the financial instruments they were modelling. They might have realised that the expected portfolio effect was just an illusion because there was no difference across the portfolio elements; there was a single point of dependency on the US mortgage market.
Ultimately, I would suggest that the failure was the failure of financial services industry to operate as an effective community. As a community they were unable to engage the distant voices. They failed to draw in the broader knowledge of the crowd out there. They could not operate as a community rather they moved as a herd.
Community of Ants
When we look at robust social organisms like ants, the power of their community comes from the variety of ways they engage with their environment and then reform to address particular threats. In fact, research studies have identified that a special properties that arise from the interconnected relationships of relatively simple organisms. These properties are classified as ‘emergent’. Emergent behaviour cannot be associated as a capability of individual participants in a social organisation. Rather, it emerges from very simple interactions. Obvious examples are the murmuration of starlings or the shoal behaviour of fish. Even human’s demonstrate emergent behaviour in the way they navigate two way foot traffic on a crowded street.
The Power of Community
So, in the face of complexity, use the community’s richness and diversity to bring fresh insights and options to your leadership.
As a Portfolio Executive, you are invited to join our community of Portfolio Executives. You can draw upon experiences across various industries, sectors, and professions. You can have your finger on the pulse in a different way than you could have working in a single organisation or for a single client. Contact charles-mclachlan@futureperfect.company to learn more.
Remember to appreciate the power of Community as you seek to develop Clarity in response to Complexity.
Charles McLachlan is the founder of FuturePerfect and on a mission to transform the future of work and business. The Portfolio Executive programme is a new initiative to help executives build a sustainable and impactful second-half-career. Creating an alternative future takes imagination, design, organisation and many other thinking skills. Charles is happy to lend them to you.