Business Report

Getting Ahead of the Curve in a World of Cascading Crises

How scenario planning and forecasting tools can help organizations prepare for the worst—or seize entirely new opportunities.

Four years ago, the threat of an avian-flu pandemic catapulted up the agenda of governments, global health agencies, and companies. The outbreak of an earlier virus, which caused a disease called SARS, had illuminated what a fast-spreading global virus could do to travel, commerce, and public well-being. As a shipping company, UPS took the flu warnings seriously. The head of strategy assembled 20 managers from different areas of the company for several workshops that explored how the disease might affect UPS’s ability to serve its customers. The objective was to examine and rehearse responses to various scenarios. Participants came up with five of them, each of which described the possible origins of a pandemic, the consequences, and the contingency plans that UPS might implement.

Luckily, the avian-flu pandemic did not materialize. But in April of 2010, an unknown (and unpronounceable) little volcano in Iceland began spewing tons of ash into the air, disrupting travel across Europe and forcing the UPS air hub in Cologne, Germany, to shut down. UPS recognized that just as in some of the pandemic scenarios, air travel would be impossible in certain regions. And because it understood the consequences, it was able to work backwards, adapting its flu contingency plans to the volcanic eruption. The company rerouted flights from affected European hubs to Istanbul, Turkey, and directed its network of trucks to deliver packages over long distances on the ground. Service was not interrupted.

This incident illustrates the changing nature of the crises that companies—and economies—face in our increasingly complex, interconnected, fast-moving world. UPS was not just an independent actor facing a problem. Rather, it was a critical component of the global commerce infrastructure. Had the volcanic eruption been bigger or more prolonged, or had UPS been unable to respond quickly and effectively, the consequences could have triggered—and amplified—further crises across the shipping and airline industries, the countless businesses depending on them, and ultimately the global economy.

Of course, we’ve faced serious crises before. The 1970s, for example, brought the OPEC embargo and the resulting gas lines; war in the Middle East, Vietnam, and Cambodia; the Pentagon Papers; Watergate; a presidential resignation; stagflation; the near bankruptcy of New York City; and the Iranian revolution and hostage crisis. But today the crises seem to come more frequently, develop more rapidly, and affect more players. In 2008, the subprime-loan disaster in the United States quickly rippled out from local markets, toppling national investment banks that were packaging the faulty mortgages as complex bonds. Panic spread through the mass media and the Internet, cascading across an interconnected world. Much of the damage was contained by swift action on the part of national governments, but we didn’t escape a plunging stock market, unprecedented bailouts that led to potentially crippling national debt, and rising unemployment—effects that have stretched across regions and countries.

This 21st-century phenomenon of unending crisis actually began in the late 1990s, when the Web took off. Thanks to massive increases in computational power and the expansion of the global knowledge economy, the world is now densely and almost instantaneously interconnected. And thanks to ubiquitous communication, we all know about a crisis as soon as it happens, making the local instantly global. Just recall how fast the videocam images of oil gushing from BP’s broken well in the Gulf of Mexico flashed across the world last spring.

In this environment, planning, learning, and reflection are all too often replaced by sheer reaction. Our leaders in business and government rush from crisis to crisis, putting off strategic agendas in order to deal with every new surprise. Indeed, cascading crises have become the agenda. And this creates significant operational and strategic challenges. Amid such complexity, it’s no wonder that the average tenure of a CEO at a large U.S. company is only six years—and falling.

This month, Business Impact will look at a variety of predictive models and simulation methods that enable business and technology leaders to anticipate surprise and gain an edge. Computer scientists and mathematicians are teaming up with experts in every field to create models of the future that range from tracking how a pandemic might spread to using search data and Twitter feeds to anticipate what consumers will buy.

Some of the models aim to answer big questions in unexpected areas, such as how classroom education could be improved or whether a marriage will survive. Others target multibillion-dollar conundrums facing the world’s biggest industries; experts have devised models that forecast traffic on wireless networks to avoid future meltdowns and anticipate whether space junk will crash into the satellites responsible for global communication. Through it all, it’s important to bring a skeptical eye. Can the future really be predicted at all? And if so, why weren’t we better warned about catastrophes such as the 2008 financial meltdown? Many of us agree that abundant signs of trouble were out there and the tools were working, but we failed to take them seriously enough.

Scenario planning is just one of these tools, although it doesn’t try to predict the future but presents several plausible alternatives to challenge our assumptions and strategies. Others include data mining, business analytics, crowdsourcing, and neural networks. Used correctly, they can help organizations develop the capacity to anticipate crises, recognize and track them as they occur, and prepare contingency plans to deal with them. Ideally, such tools can also enable companies to seize opportunities before competitors even see them coming.

Peter Schwartz is cofounder and chairman of Global Business Network (GBN), a member of Monitor Group, and author of five books, including The Art of the Long View. David Babington, a Monitor consultant, is the 2010 Futures Scholar at GBN.

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Next in this Business Report

Predictive Modeling

More and more companies are using sophisticated software to model future behavior and probabilities in their industries; applications range from disaster prevention to change management to anticipating the impact of economic trends to forecasting customer churn. We’ll explore how companies are employing software tools including data mining, business analytics, and neural networks to anticipate everything from this afternoon’s network traffic to potential crashes of communications satellites.

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