Explainers

In Change, Beware Conflating Uncertainty with Risk

“Uncertainty” and “risk” are not interchangeable. Amid change, organizations hazard losing time and returns to their competitors if they obsess over what’s to lose verus what’s possible.

As the world has become more connected, it has also become more uncertain. Increased interdependence means not only that actions can have wider impacts (see the U.S. housing market collapse that brought down the global economy), but also that those impacts are increasingly faster felt and less predictable. “Uncertainty” might seem overused, but it’s an apt description for the era in which we live.

Organizations are swimming in the Four C’s of Uncertainty:

  • Conditions. With an immense amount of data and rapidly changing trends, much like a rushing river, the conditions around an organization are difficult to pinpoint accurately at any given time and, once described, immediately irrelevant.
  • Competitors. With categories blurring and technology progressively lowering barriers to entry, an organization’s competitive set is impossible to predict over time (e.g., who won’t Amazon threaten next?).
  • Cause/effect. With uncertain conditions and competitors, no one can divine exactly how any strategy may play out. Sure, organizations might have confident guesses, but when strategy relies on being at the right place, at the right time, with the right offering, any significant deviance can be deadly to its goals.
  • Organizational cultures. Organizations have one final glaring uncertainty: how to manage their people and direct the firm’s culture when the path forward isn’t obvious.

As leaders, this level of uncertainty has a dramatic and observable effect on our brains: specifically, it triggers our threat response. A lack of certainty produces the same cocktail of chemical responses in our brain as seeing a predator on the horizon. Anxiety comes next. Our “anxiety neurons” then talk to our hypothalamus, which cues our avoidance behaviors. As a result, we hem, we haw, we ignore, we retreat, and we frequently become obsessed with avoiding risk. This is why we see organizations continually kick the can down the road when it comes to change and transformation: they are responding as if the changes around them are existential threats.

But “risk” and “uncertainty” are not interchangeable.

A risk is a known danger, in that we know the potential outcomes and we can apply a probability to those outcomes. For example, we know that if you are taking a long road trip, the average risk of an accident is 1 in 366. Your risk of dying in that accident? 1 in 103. Hence, your risk of dying on a long trip is highly unlikely. We know this because we have encountered these conditions repeatedly, enough that we can establish statistically significant predictions.

Uncertainty is categorically different. By definition, we haven’t encountered these conditions before. The odds may be worse, but they could also be far better. Moreover, there may be untold prizes to be discovered in the journey itself. We simply don’t know until we venture out.

Unfortunately, organizations constantly conflate risk and uncertainty. In doing so, we typically see organizations:

  • Delaying their response because of avoidance behaviors; not only winnowing their potential gains but conceding ground to their competitors
  • Investing in costly suboptimal solutions (choosing the devil they know), versus embracing safe-fail experimentation and survivable short-term losses that could return long-term gains
  • Demanding ever more information and expertise in order to reduce their risk, leading to overconfidence amid unpredictable outcomes

As leaders, we have to train our brains to see risk and uncertainty differently. In truly uncertain conditions, delays will only serve our competitors. Big-ticket “safe bets” are costly mirages. And no pile of information and expertise can confidently tell us what comes next.

Instead, this is how we advise leaders to respond to uncertainty:

  • Assess the novelty of the situation. When presented with change and before your brain succumbs to a whirlwind of threat and anxiety, reflect on the level of novelty and ambiguity you’re facing. If the situation is truly uncertain, switch your physiological response from anxiety to excitement. Embrace what’s possible and not solely what’s preventable. Instead of focusing on, “What’s at risk?” ask your team, “What’s possible?”
  • Acknowledge your fears. Even when you can intellectually separate the two, uncertainty still may register as risk. It’s healthy to admit it and to catalog the many ways you may feel at risk, including the cost of being wrong and the stigma of being seen as wrong by your peers. The goal here is to be ever more conscious of how your feelings of risk may impact your decision making. Extend this understanding to your team and their fears.
  • Embrace experimentation. Think of your activities as a means not just to produce a desired outcome, but as a means to a deeper understanding of the conditions around you. In this way, think of the social game “21 Questions.” In that game, every question gets you closer to an understanding of the winning phrase; think of each of your tactics as a means of asking a question that can deliver an illuminating answer. In the beginning, bet small.
  • Manage your stress and recovery. Lastly, know that uncertainty (over a prolonged period) produces an incredible amount of stress. The term “allostatic load” made headlines this year: it describes the wear and tear on one’s body and mind after repeated stress. Leaders and teams experiencing constant uncertainty also need repeated periods of rest and recovery.
Published July 25, 2021