Gray rhinos in our globalized, digitalized world

 What do last year’s protests in different cities around the world tell us about political risk? Can we expect populations stressed by social distancing, lockdown and financial uncertainties to simply pick up where they left off once the pandemic is over? How can we set the stage for a vigorous recovery?

The coronavirus pandemic has exposed deep fissures and weaknesses in global markets. But it’s not fair to place all the blame on the virus alone. This recession has been a long time coming, and is an inevitable consequence of years of debt-fueled growth and increasingly brittle systems created in the name of efficiency. At the same time, there can be no denying that the pandemic has both heightened and highlighted reliance on digital technologies. Beyond superficial uses like food delivery apps and Snapchat filters, digital solutions and the entities that provide them have become key pillars of the global economy. Accordingly, as the pandemic unfolded and its worldwide reach became clear, the five FAAMG stocks (Facebook, Apple, Amazon, Microsoft, Google) surged.

Never mind the elephant in the room – Watch out for the rhino

Populations in wide swathes of the world have not experienced warfare or food shortages since 1945. Even the powder keg of the Cold War that shaped post-WWII life has come to an end. The Internet and digital technologies have grown up in this environment, driving perpetual growth – if we assume this environment will continue.

But the absence of crises is no indication of reduced crisis risk. The currently prevailing attitude ignores important signs, the “gray rhinos” in the room: highly probable, high-impact yet neglected threats, as detailed in Michele Wucker’s 2016 book. Gray rhinos are not random surprises, but occur after a series of warnings and visible evidence. And today’s globalized, digitally interconnected economies and efficient supply chains are exposed to an array of rhinos. Here, we look at the vulnerabilities and how we can address them, a topic explored in greater detail in the 2020 paper The Gray Rhino in the Room: The Fragility of Digital Technologies.

Infrastructure instability

In the middle of winter 2015, 30 substations in Ukraine’s power grid were shut off, leaving about 230,000 people without electricity, in a sophisticated cyberattack. While power was restored within six hours, the incident highlighted how a belligerent could critically degrade living and economic conditions without firing a single shot.

But even without political conflict, extreme weather driven by climate change could cause increased power outages. In a world that relies on global growth to recover the losses caused by the pandemic, unstable infrastructure could become a stumbling block by excluding millions from the use of digital technologies.

Fragmented Internet

Almost all digital technologies rely on the Internet in some way. But the Internet itself could be facing widespread fracturing for political reasons. The US has repeatedly denied approval of a Chinese-backed undersea data link, and has exerted pressure on the UK over its use of Chinese firm Huawei for 5G infrastructure. China itself has proposed a new protocol known as “New IP” with stronger state control over content, which could fracture standards if adopted. Countries such as Iran, Bangladesh, Ethiopia, India, and Myanmar have imposed Internet shutdowns for various reasons in recent years. A breakdown in Internet connectivity could render many digital technologies inert.

Cyber security

Currently, data breaches cause approximately US$ 3 trillion in losses to the global economy annually; this number is expected to go up to US$ 5 trillion by 2024 according to Jupiter Research, and it may be increasingly linked to geopolitical developments. CNN has reported that state actors were behind a wave of attacks to access coronavirus research.

Building better responsiveness

Resilience is a system property that enables the system to bounce back and restore its structure in the face of stress and change, while Nassim Nicholas Taleb’s concept of antifragility refers to systems that –  as a whole – improve with stressors over time. Let’s give some thought to some key guiding principles for becoming both resilient and antifragile.

Simplification

The iPhone requires components from more than 200 companies around the world before being assembled by Foxconn in China. In the case of supply chain disruption, complex products like this will be severely impacted. We can identify areas where we need to simplify by reviewing the mission-critical processes in organizations and tracing them back to each dependency. Simplicity also comes with a cost: in some cases, we might need to make difficult decisions that involve abandoning a more “advanced,” but complex, solution in favor of more time-tested and robust methods. What we gain in return is greater certainty.

Decentralization

If we start to assume restricted access to key resources is an increasing threat, technologies should be designed to operate with intermittent service as part of the working environment. This applies not only to commodities like electricity and Internet access, but also to things like physical movement. For example, the need to work from home has highlighted the advantages of a distributed and digitally connected workforce. We need to consider the need to decentralize across our entire stack, including factors like where our servers lie, who our suppliers are, and what core technologies we rely on. This extends to culture and governance as well: decision-making needs to be decentralized, so an organization can continue running even if key members are unavailable.

Agility

Ultimately, the only foolproof way to deal with change is to change ourselves. In an uncertain environment, we no longer have the luxury of executing multiyear plans based on months of analysis. Rather than trying to control everything and eliminate randomness, we should improve our ability to respond to the unknown. We need to first transform our organizations to be objective about the prospects of success for any given initiative. From an IT perspective, transitioning to higher usage of DevOps and microservices-based architectures can help us keep up.

Running with the rhinos

While we can’t know exactly when we will emerge from the pandemic and what the post-COVID world will look like, we can be mindful of the obvious perils we face. We can get ready for the known unknowns and leave space for the unknown unknowns. When the dust settles, those who were able to get their bearings and run with the rhinos will come through stronger than ever – and ready to pick up the pieces.

This article was authored by Maomao Hu and Mike Durrie