Essay on Three Dimensions of Productive Paranoia

In this chapter, the authors Collins and Hansen (2011) explore the three dimensions of productive paranoia that includes building cash reserves and buffers, bound risk, and zoom in, zoom out.

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Collins and Hansen (2011) discuss very critical issues that are not only strategic to the survival of companies but are the building blocks of resiliency and sustainability of businesses in the dynamic global market today.

Building Cash Reserves and Buffers

On building cash reserves and buffers, the authors explain that success of a company during periods of economic storms depends on how well a company has prepared for these unexpected events and back lucked before they happen.

Cash reserves and buffers can be used to jump-start a business after an economic shock. Cash reserves can be used to cover operating expenses in order to stabilize business before full recovery. However, it is not clear how this can be achieved when businesses vary a lot in terms of market niche, internal operations and model used - factors which determine the level of capital investment and consequently the cash reserve and buffering needed. These authors ought to have taken this discussion a little bit further to analyze ways in which various organizations can determine the level of cash reserves and buffers for each type of economic shock, that is, short-term and long-term.

Risk dimension

On bound risk dimension, authors supposes that an understanding of the three basic types of risks in another important approach to meeting challenges brought by economic downturns. Collins and Hansen explain the three types of risks: death line risk is one which can either "kill" or cause severe damage to an enterprise; asymmetric risk is that in which the downside thwarts the growth of the upside; and uncontrollable risk is the unique type of risk that can neither be controlled nor managed.

The three types of risks discussed in this section of the book cover entirely the most basic risks that a company is likely to find in its way. It is true that a risk can either lead to the complete downfall of an organization whereby the business is ousted in the industry because it is bankrupt and can longer support its fundamental operations. It may also be that the business downsizes to manage its operations more efficiently due to decline in its momentum. Finally, a risk may occur that a business has control over such as natural disasters like hurricanes. These can be of great damage, but there is just no way to properly mitigate against them because they can be of any scale. Thus, the last type of risk, uncontrolled risks, can cause huge damage that can be hard to recover from and insurers are hesitant to cover such risks either.

Risk Management Techniques

The authors embark on explaining how 10X leaders employ risk management techniques that keep their companies successful despite the storms. According to Collins and Hansen (2011), 10Xers recognize an important fact that they cannot predict the future, but they can create it.

With the three types of risks discussed above, it is quite clear that it may not true to say that one can predict the future. However, it is true that one can anticipate what the future is likely to bring and make an attempt to cover for such anticipated events. Even though this is done without much precision, it is worth than doing nothing at all. This is what Collins and Hansen recognize to be special about 10X leaders - the boldness with which they approach the uncertainties of the future. This way, it is not only possible to circumvent catastrophic events, but it is also possible to achieve sustainability which is very crucial for long-term survival of businesses(Beattie, 2016).

Future Decision Making

The unpredictability of the future comes with the fact that such an attempt at prediction would be highly unreliable and inconsistent, necessitating obsessive planning ahead at all times, always. This, according to Collins and Hansen (2011), is what 10X leaders are good at.

This discussion is one of the areas that draw criticism of these authors' work. While the authors praise 10X leaders for their pragmatic and somewhat spontaneous decision-making, available data show the contrary. It is evident that companies or organizations that take time to make decisions do better in terms of achieving sustainability in their operations unlike those that rush at decisions(Beattie, 2016). While the rushed decision may help a company to tap into an opportunity of the moment, this may only result in short-term success. However, sustainability is the most important in terms of business operations and risk management. A technique that results in short-term or immediate success may thus not very good for the future of a company. A good scenario is with the mobile industry where Samsung and Apple are key players. When these companies launched their smartwatches, they had perceived to the next big thing in mobile technology, only to realize staggering sales in their first two years. In fact, Samsung had hard time with its Samsung Gear which never picked up as the company had expected(Mathar, 2015). While Samsung Gear had 14.3% of global market share, its counterpart iWatch enjoyed over 52% of the market share in the last quarter of 2015 but with less than 10 million shipment(Mathar, 2015). This shows that if any of these companies made obsessive and rushed decisions to invest heavily in the wearables, it may have suffered losses which it could have avoided by taking time to analyze the market, make clear forecasts and understand acceptance issues associated with new technology(Martinez, 2012).

Negative Events

10X managers assume that a series of negative events would ensure their quick succession at any time and unexpectedly.

It is no doubt that negative events may not appear intermittently but may be continuous events covering some period of time. Thus, a manager who prepares for instantaneous event may find it hard to navigate through a series of negative events. A good preparation for future uncertainties is to extrapolate such events to cover substantial period of time.

Economic Recovery

The aftermath of such a storm - pulling forward, falling behind or getting killed in the process - will depend on how decisions were made and which principles informed such decisions much earlier before the events occurred.

This point takes us back to the discussion of point 2. Collins and Hansen realizes how much it is important to consider the ability to recover from economic shocks even with all the mitigation strategies in place. Principles and guidelines are crucial in risk management(Beattie, 2016). These principles and guidelines can be developed through analysis on the history of a company and the economy (Murray, 2016). Decisions reached at this point can be dependable to enable a firm to mitigate against perceived risks and get over them successfully.

Risk Associated with effective Decision Making

Accordingly, Collins and Hansen (2011) reiterate that the ability of 10X leaders to prepare in time for all the three types of risks discussed is the basis of their success. They conclude that a change that has come rapidly does not require a disciplined thought or action rather it requires that a leader applies integrity in order to zoom out when there is a need to make fast yet rigorous decisions and zoom in when there is a need for superb execution of a business strategy.

This concluding point is open to discussion and criticism. It has been clear from the discussion on point 5 that rushed decisions do not necessarily mean better performance. If anything, such decisions only bring forth short-term success. Most of the companies that take time to analyze issues around their decision points achieve the best results that ensure sustainability in their operations. It is no doubt that rushed decision might even make matters worse than they were just before such decisions were reached and implemented. However, rushed decisions may not necessarily be wrong if we consider how Apple under the late Steve Jobs performed and even came to overtake Microsoft in terms of market value(Murray, 2016). This turnaround story was the result of pragmatic decisions of an egoistic CEO. Such managers are few and not easy to find. Besides, they do not arrive at their decisions that fast and obsessive but rely on history and clear understanding of the business to make rational decisions.

References

Beattie, K. (2016). Book Summary: Great by Choice. The Growth Faculty. Retrieved 2 October 2016, from http://www.thegrowthfaculty.com.au/articles/great-by-choice-book-summary#.V_Cewr1RXqA

Collins, J. C., & Hansen, M. T. (2011). Great by choice: Uncertainty, chaos, and luck : why some thrive despite them all. Ch. 5: "Leadership above The Death Line". New York, NY: HarperCollins Publishers.

Martinez, P. (2012). The consumer mind. London: Kogan Page.

Mathar, T. (2015). Smartwatch Market Research, Insight & Intelligence. Ljresearch.co.uk. Retrieved 24 September 2016, from http://www.ljresearch.co.uk/smartwatch-unlikely-to-cause-the-next-mobile-revolution/

Murray, A. (2016). Turbulent Times, Steady Success. WSJ. Retrieved 2 October 2016, from http://www.wsj.com/articles/SB10001424052970204422404576595722814588188