‘We failed to heed warn­ings from our pre­vi­ous mis­takes and an earth­quake en­sued’

Rashmi Dubé

Yorkshire Post - Business - - FRONT PAGE -

No man is an is­land, a fa­mous line from Devo­tions upon Emer­gent Oc­ca­sions, a 1624 prose work by English poet John Donne. At the time of writ­ing he could not have fore­seen he was fore­cast­ing the fu­ture of so­cial in­no­va­tion. If no man is an is­land and we all im­pact upon one an­other should busi­nesses con­sider how the but­ter­fly ef­fect can im­pact them and oth­ers?

In the chaos the­ory the but­ter­fly ef­fect, in essence, is “the sen­si­tive de­pen­dence on ini­tial con­di­tions in which a small change in one state of a de­ter­min­is­tic non­lin­ear sys­tem can re­sult in large dif­fer­ences in a later state”. Wikipedia.

There­fore, a change of con­di­tions in one sec­tor can have a di­rect im­pact on an­other. The chaos the­ory can clearly be il­lus­trated in the fi­nan­cial sec­tor and con­struc­tion. What of­ten ap­pears to be random in­ci­dents within the fi­nan­cial sec­tors soon tend to have a greater im­pact than first en­vis­aged. Ex­am­ples are: 1929, 1987 and more re­cently 2017. In the ex­am­ple of 1987, also known as Black Mon­day, the Dow Jones In­dus­trial Av­er­age (DJIA) lost around 22 per cent in one trad­ing day, the largest per­cent­age drop ever for that mar­ket for no real ap­par­ent rea­son.

There are still only the­o­ries as to why there was a panic in sell­ing, but the most com­mon be­lief is “that the spec­u­la­tive boom lead­ing up to Oc­to­ber was caused by pro­gramme trad­ing, and that the crash was merely a re­turn to nor­malcy”.

What we were sup­posed to learn from that was that we should mon­i­tor all fi­nan­cial mar­kets to try and avoid this hap­pen­ing again. We failed to heed the warn­ings from our pre­vi­ous mis­takes and an earth­quake en­sued with the fall of the Lehman Broth­ers. When did the but­ter­fly flap its wings on this oc­ca­sion? We can trace it back to a small in­ci­dent in France. BNP Paribas an­nounced it was freez­ing the as­sets of three hedge funds, 12 months later the run on North­ern Rock, fol­lowed by a bailout of

Bear Stearns in the US, and then the tor­nado with the Lehman Broth­ers.

I find it in­ter­est­ing that we in the UK are of­ten ac­cu­rately aware of some sec­tors such as the hous­ing mar­ket and con­struc­tion. A lot of busi­nesses took note when Car­il­lon col­lapsed and were con­cerned if the col­lapse was the bell­wether ring­ing for the econ­omy? It was not in this par­tic­u­lar case.

How­ever, I think it is to a busi­ness’s detri­ment if it fails to look at some sec­tors and not oth­ers. How many of us have con­sid­ered the im­pact of changes in the re­tail sec­tor and the high street? What we are see­ing in this sec­tor is a change af­fect­ing all sec­tors, namely the im­pact of busi­ness data, tech­nolo­gies and dig­i­tal trans­for­ma­tion.

Tech­nol­ogy and data are re­shap­ing the ex­ist­ing op­er­at­ing mod­els as well as the value propo­si­tion in most of the ma­jor in­dus­tries. The re­tail in­dus­try is also yelling to us that the con­sumer has changed its habits and for the very first time in his­tory I feel busi­nesses are be­hind the curve in not un­der­stand­ing the new be­hav­iour that will af­fect all in­dus­tries.

It is there­fore change that is an is­sue. We can see it hap­pen­ing at a fast rate in other sec­tors in terms of the dig­i­tal trans­for­ma­tion jour­ney. Most sec­tors are tied into a way of do­ing busi­ness and make small changes but learn­ing new skills and im­ple­ment­ing new busi­ness mod­els takes time and money. This is not the only is­sue.

There is also a lack of clar­ity from other sec­tors in how to re­spond to changes – not only in con­sumer be­hav­iour but in all prod­uct driven in­dus­tries. We need to learn while we have time which is in short sup­ply.

As small medium busi­nesses what can we do to en­sure we are pro­tected from the but­ter­fly ef­fect given we also have Brexit on our doorstep?

Lis­ten to the rum­blings and woes of the other sec­tors and be sure that you un­der­stand how this will im­pact your busi­ness and your sur­vival.


1. Make a list of the po­ten­tial risks to your busi­ness

2. Con­sider what pre­ven­tions can be put in place

3. What sec­tors im­pact your busi­ness? a. What sec­tors im­pact theirs? b. Re­peat – you get the pic­ture – no busi­ness is an is­land!

Given the changes mount­ing up in the busi­ness world, I think it is a good time to re­view our busi­ness mod­els and con­sider how to best pro­tect against a pos­si­ble tor­nado.

MAR­KET FORCES:What of­ten ap­pears to be random in­ci­dents within the fi­nan­cial sec­tors soon tend to have a greater im­pact than first en­vis­aged.

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