The trouble with uncertainty (Part 1/2)

The future is uncertain – not only due to COVID-19 but by nature. Uncertainty triggers fear. Good things could happen, bad things could happen… The truth is usually a “bit of both” and depends on the perspective.

Opportunities and threats are the two sides of the same coin called “uncertainty”. However, for the sake of pure survival – the key aim we share among all living species – we tend to pay a lot more attention to threats than to opportunities.

The trouble with uncertainty (part 1/2)

This article has been first published in our initiative*magazine #14: „Mergers, Acquisitions and Carve-outs: Reshaping for success“ (free download).

Authors:
FEDERICO AVELLÀN BORGMEYER | ARLETTE DUMONT DU VOITEL | HUGO VON LIECHTENSTEIN | NILS SCHÄFER

Table of Contents

Predicting the future

It has been a human endeavour throughout history to predict the future. Although many – if not most – predictions were at least partially wrong, we will continue to do so as they give us a sense of control. Predictions are the basis for personal as well as organisational risk and opportunity management but also strategic decisions.

At the same time, we don’t seem to trust our own predictions enough to act upon them. Many organisations are good at identifying risks and opportunities or developing strategies. It is the design and the implementation of effective measures that generally causes problems. Instead of actions, there is hesitation, delayed decisions, wasted time. In retrospect, we can detect the missed opportunities and identify the best moment of action. But at this point in time, it is only of anecdotal or forensic interest.

As organisations and its people feel ever more confronted with a volatile, uncertain, complex and ambiguous business environment – called VUCA –, coping with fear and uncertainty and gaining resilience is a key organisational competence to acquire. This is easily said and acknowledged but how can it be put into practice?

Klein et al.1, a group of cognitive researchers, offered in this context “anticipatory thinking” as an answer. It describes the ability of people and teams not only to predict but to prepare for future events in order to be able to act if or when it occurs. In the following, we are going to look at three cases to highlight the importance of “anticipatory thinking” and to present ideas and suggestions on how to acquire this skill on an organisational level. In addition, we are going to showcase the role that M&A strategies can play in this context.

What is this “anticipatory thinking”?

Klein et al.1 defines “anticipatory thinking” as a critical macrocognitive function of individuals and teams and the ability to prepare in time for problems and opportunities. According to him and his colleagues, it is different from prediction since the preparational aspect goes beyond predicting what might happen and caters not only for predictable but also for low probability high impact events even if they cannot be fully understood until they happen, e.g. black swans.

Therefore, it includes active attention management and covers three types of anticipatory thinking. The first one is called “pattern matching” and refers to the fact that we anticipate from experience a certain pattern. If in reality the situation doesn’t correspond to the anticipated pattern, people who are experienced in anticipatory thinking are alarmed. This, for example, differentiates an experienced car driver from an inexperienced one.

The second type is called “trajectory tracking” and describes a person’s or organisation’s capability to follow and foresee a course of action and react to trends. For instance, catching a ball is a form of anticipatory thinking that a person develops over the course of childhood. And last but not least it encompasses people’s ability to predict and react to the implications of combinations of events.

The authors further describe “anticipatory thinking” as a future-oriented aspect of sensemaking. Anticipatory thinking also encounters obstacles in practice, which are related to human perceptions and biases, organisational systems, policies and constraints and expertise in the area. But it is a function of the brain and a skill that can be trained in order to improve anticipatory thinking itself and as a consequence decision making and dealing with uncertainties.

1. Klein, G., Pin, C. L., and Snowden, D. (2011). Anticipatory Thinking. Available at: https://www.researchgate.net/publication/228953044_Anticipatory_Thinking/link/541816640cf203f155ad9647/download (Accessed 21.06.2021).

Case #1:

The Kodak effect: Being overtaken although ahead of times

One of the main drivers of uncertainty at present are “disruptions” caused by new business models. “Disruption” describes the situation, in which a new player enters an established market with a new, often technology-based, light-weight, easy to use and cost effective alternative to the products and services of the established players bringing an entire sector in turmoil.

The list of companies that dominated their markets before they became victims of disruption is long. We know the outcomes: Kodak and Agfa, for example, do not exist anymore after 100 years of successful business. Market players in this industry are now Instagram, TumblR, WhiteWall, Adobe Photoshop and many others. How could these iconographic entities fail so badly?

There seems to be an easy answer: “They all had bad management, did not see the trends of their times, did not act professionally” and thus deserved to be easily overrun by small disruptive (digital) entities in no time. Fact is, most of these companies did recognise the trends of their times and did everything right: They perfectly knew their client’s needs and wants, had enough financial and the best personal resources, their products and services enjoyed fantastic margins to make their shareholders and well paid employees happy, their early warning systems detected disruptive competitors, they even invested in their technology or acquired them entirely. And still, it did not help.

All of the above organisations were trapped in their paradigms: Satisfy shareholders and employees with high yields and salaries respectively, here and now. Opening a Pandora’s box with potential risks, calling for a transformation that could jeopardise a functioning business model and require deep structural changes, however obvious and imminent they may be, is frightening.

So here we are: the right predictions as well as first steps are made but the uncertainty leaves a lot of room for doubt. There is potentially more to be lost if our predictions are wrong then to be gained if they turn out to be right – a primary and very prominent human fear. Its consequence: hesitation. The status quo prevails and the right moment in time for the transformation is missed.

This article was first published in our initiative*magazine #14:

„Mergers, Acquisitions and Carve-outs: Reshaping for success“

How can “anticipatory thinking” help in this situation?

Anticipatory thinking prepares for future events by (at least mentally) simulating different scenarios. It addresses the question “what is next?” or “what could be next?”. And once this step has happened: “what is next?”.

This game is obviously endless and leads to a funnel of possible scenarios, of which only one will materialise – provided that reality doesn’t follow an unanticipated path. So, at the first sight, this adds complexity instead of reducing it. But once the scenarios are on the table, the key tasks is to identify the very next decision and action point. It is then to decide how to prepare for this point only (including an exit strategy).

At the according moment in time the task is to make the decision, launch the action and to repeat the anticipatory thinking exercise for the next decision and action point taking into account the lessons learned – in fact a core agile approach.

How can “anticipatory thinking” help in this situation?

While fear and hesitation may well be addressed by anticipatory thinking, organisational barriers may still limit how well the preparation translates into actions. People’s (un-)willingness to change provides for a range of obstacles but even if they are eager and motivated, the journey requires a lot of effort. Individuals and the organisation have to unlearn well-trained and automated behaviour and replace it with new ways of operating and interacting. The larger the company and the longer it has operated in a certain way, the more effort is required to unlearn and re-learn. This process can be accelerated through dedicated change management measures. But it is never a quick win.

One successful way out of this situation is to use anticipatory thinking and to combine it with a dedicated M&A strategy. Organisations that have done this well identified and anticipated market changes early. They directed a significant share of their investments into ecosystems, small firms and start-ups that could well be their tomorrow’s busi-ness models.

What differentiates successful from the less successful organisations following this route is their ability to let go. Effective investors don’t try to copy or integrate new ecosystems or business models into the existing organisation but instead sponsor and let the ecosystem grow organically. Options to join forces in this manner include participations, investments, partnerships and acquisitions. If performed well, this creates a win-win situation. The established organisation continues to follow its core business and reaps the margins from its market-dominating products or services. These margins provide for the financial input into new ecosystems and start-ups, which they are usually desperately missing.

Anticipatory thinking helps to stay in focus and control while allowing changes and adaptations due to learning, new facts and realisations along the way. The new ecosystem is going to be able to adapt and learn faster as there is nothing to unlearn – as long as it is not forced into the traditional organisation’s culture and processes. The latter is a key reason for these ventures to fail entirely or at least to deliver less value than expected, especially in combination with (too) high purchasing prices. Integration strategies tend to neglect the (cultural) specificities of the two joining systems that are often the cultural opposite of each other. Forcing the traditional culture and structure onto the new ecosystem is going to kill the purpose of performing the exercise to begin with. Forcing a traditional business into the “new world” overburdens its systems and people.

Venture Capital Subsidaries – one way to keep the distance

One option for a traditional firm to take a (major) stake in a small, start-up company from a distance is through venture capital. For this purpose, the traditional firm sets up a venture capital subsidiary that can act relatively independently on the market and invest in young businesses that are considered to be able to push the mother company’s business towards digitalisation or any other business model envisaged for the future. The start-up business, however, keeps the necessary independence from the mother company to develop their organisation and offering.

Case #2 und Case #3 will be presented in the second part of the article coming soon… Stay tuned for more!

In the meantime, amontis will gladly guide through your Merger and Acquisition activities. The first talk is free of charge.

How can we help for your M&A activities?

amontis has many years of experience of helping companies to successfuly close merger and acquisitons deals and to harmonise differen corporate cultures.

Learn more here: www.amontis.com/mergers-and-acquisitions

We also design special trainings to give you the best knowledge and tools to carry on successfuly with your M&A, Carve-out or Post-Merger-Integration activities:

If you need further consultancy, just get in touch with us our first conversation is free of charge.

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About the authors

Federico Avellàn Borgmeyer

Federico Avellàn Borgmeyer

Federico is managing the change on digital transformation along with new (digital) business models. He uses advanced technologies, i.e. AI/Machine Learning or Blockchain, where appropriate, he restructures where needed, or consults on M&A or Financing where required.

Arlette Dumont du Voitel - amontis

Arlette Dumont du Voitel

Arlette ist Managing Partner der amontis consulting ag und Consultant, Interim Manager, Trainer und Coach in allen Bereichen des Change und Projektmanagements.

Hugo von Liechtenstein

Starting in 1999, Hugo built and ran the „Acquisition Finance“ team at Crédit Lyonnais‘ Frankfurt office, until he left in 2004 to launch his own consultancy company. His main focus during the time at Crédit Lyonnais was the structuring of LBO/MBO financings for private equity firms in Germany, Austria and Switzerland.

Nils Schäfer

Nils Schäfer is an industrial engineer and consultant at amontis. In addition to his technical and economic education and project experience in lean and process management topics, he is studying ethnology and philosophy alongside his consulting work in order to be able to grasp and effectively address the human and multicultural aspect in projects.

Mathieu Blondeau

Mathieu Blondeau is a Marketing specialist with a strong international background. Open-minded and motivated, he gives the best to overcome new challenges.

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