From risk to uncertainty and the pace of innovation

Thomas Homer-Dixon wrote a piece on the 19th of March 2008 called “From Risk to Uncertainty”. He reasons that the current problems in the world economy are systemic, and I agree with him. There are three major reasons, all happening at the same time, that pushed the envelope of the current reasoning about capitalism and global financial systems.

1. Sheer productivity gains of modern capitalism – The world’s businesses are on a treadmill focusing on increased productivity, innovation and execution ability. There is almost an obsession by businesses to reduce costs, and focusing on flooding markets with products and services. Factories must stay busy, people (and their skills) must be world class, practices applied must be lean and all inefficiencies removed from the business system. And then on top of this focus, credit is/was available at low cost as financial institutions explore new markets and drive growth plans.

2. In the last three decades there has been a focus on developing a “neoconservative ideology” that influenced the thinking of global financial thinking. Individual global opinion leaders had an overly powerful impact on the movements that influence big businesses today. I will discuss some of Sumantra Ghoshal and Gary Hamel’s work at a later occasion; they reason that businesses are in trouble because practices and business concepts are copied and used universally.

3. Technology innovation has pushed the limits of human social capital and speed of financial transacting to levels never thought possible before. Hardware, software, and communications technologies like fiber-optic allowed people to conduct financial transactions instantaneously and independently of the complexity of the underlying financial system. So, how do you define money in a modern world? Is the Linden dollar, Neopoint or Everquest platinum pieces (and others like these) more important than the US dollar?

Watch this video on neoconservatism and you can relate the concepts to some of our challenges today.

We need to find a new way to think about business ecosystems and human reasoning about business (built to thrive in an emergent ecosystem). Consider this; military strategy is about risk, human oriented strategy is about uncertainty.