Rogue Waves

Synopsis

Rogue waves that upend entire industries and break businesses, like pandemics and financial crises, occur more frequently than ever. In Rogue Waves, author Jonathan Brill shares the five-step ROGUE framework that helps turn major systemic threats into outsized opportunities.

The first step is the Reality Test, used to deeply understand your present state. The Organize Your Forces step helps you model the forces that keep your current system stable. Step three is to Generate Your Futures through simulations to identify potential opportunities and threats. Step four is Uncouple Opportunities from Threats to identify where and how to intervene. The fifth step is Experiment, where you build an experiments portfolio to maximize your odds of success

Questions and answers

What are the benefits of deeply understanding your present state in business?

View answer

Deeply understanding your present state in business allows you to identify the forces that keep your current system stable. It also helps you to identify potential opportunities and threats through simulations. This understanding can help you to uncouple opportunities from threats and identify where and how to intervene. Finally, it allows you to build an experiments portfolio to maximize your odds of success.

What are the key steps in preparing for black swan events?

View answer

The key steps in preparing for black swan events include: firstly, conducting a Reality Test to deeply understand your present state. Secondly, Organizing Your Forces to model the forces that keep your current system stable. Thirdly, Generating Your Futures through simulations to identify potential opportunities and threats. Fourthly, Uncoupling Opportunities from Threats to identify where and how to intervene. Lastly, Experimenting, where you build an experiments portfolio to maximize your odds of success.

View all questions

Ask follow up

Top 20 insights

1. As the world moves faster and becomes more connected, Rogue Waves are no longer edge cases. External events of large magnitude like wars, financial crises and large natural disasters have severely affected large companies every seven years on average. American business leaders respond to radical external change nearly 45% of the time.
2. In an increasingly volatile world, resilience is the new growth strategy. Resilient organizations have more redundancies than what Six Sigma advocates find acceptable. But today's organizational mandate is not just about performance. It's also about surviving and recovering from unexpected systemic shocks.
3. Any business or economy is just a combination of games with different rules, different winning probabilities, and different payouts. In a casino, while individual players win or lose, the house always wins the night because it places systemic controls on the flow of information. Similarly, a business can beat randomness and win by placing systemic controls around the unknown.
4. All business risks can be slotted into the FOES framework: Financial, Operations, External and Strategic Risks. Financial, External and Strategic risks combined have accounted for significant, sustained value loss of over 20% in 92% of occurrences over 20 years. Therefore senior managers look out for Financial, External and Strategic Risks, while mid-level managers primarily focus on Operational Risks. While the above approach works in regular times, it can sink an organization when rogue waves hit. When change is rapid, junior people on the ground will see it first. Organizations must teach them what to look for, create effective mechanisms to process their warnings and give them the confidence that they will be heard.
5. Rogue waves can have four types of characteristics. First, they can be Static, with constant probability or Dynamic, with varying probabilities. Second, they are Symmetric or Asymmetric based on whether they affect all parties equally or unequally. Third, they are either Synchronous or Asynchronous, based on whether they impact all parties simultaneously or at different times. Finally, their impact can be Sustained or Temporary. Covid-19 was a dynamic, symmetrical synchronous wave as its probability changed over time, and its impact was on every business in the category within the same time frame. In contrast, the rapidly growing cyberattacks on companies are static, asymmetric and asynchronous.
6. Three things are required to spot the next rogue wave before your competitor does. First, be familiar with today's prominent economic, technological and social undercurrents. Second, pay special attention to events that cause two or more undercurrents to interact. Finally, build awareness throughout your organization so that everyone can scan the horizon for critical indicators.
7. To build systemic intuition about the threats and opportunities created by rogue waves, think through the impact of the different types of rogue waves on the four FOES of your organization. Ask how they can impact you and create new opportunities for your organization to create outsized value.
8. Demographics are one of the top 10 undercurrents that will shape the next wave. As birth rates decline in highly developed countries, the percentage of working-age people with advanced degrees will fall. California alone will have a shortage of 1 million college graduates by 2030. By 2030, the only major country with a labor surplus will be India, and the surplus will barely cover California's projected shortage alone. This means that companies must emphasize talent over tax considerations while making locational decisions. Wealth, production and power are reorganizing from Europe to Asia. In 2019, 121 companies in the Global Fortune 500 were from the United States, while 129 were from China (includes 10 Taiwanese firms). By 2035, 2.1 billion people will be earning the global equivalent of $35000 per year, and 87% of this growth will be in Asia.
9. Use the ROGUE method to prepare for rogue waves and build organizational resilience. ROGUE is a set of mental models that help you identify systemic risks and opportunities and potentially shape them in your favor. ROGUE consists of five stages Reality Test, Organize your Forces, Generate Possible Futures, Unbundle your Risks and Experiment. Step 1 of ROGUE is Reality Testing. Many organizations put great effort into collecting data about the past to forecast the future, but far less into modeling the present. But if your model of the present is wrong, your model of the future will mostly be wrong as well. Reality Testing helps you clearly understand your present state to avoid making decisions based on wrong information.
10. For Reality Testing, use the four-step REAL Framework - Reconnaissance Method, Evidence Collection, Alternative Analysis and Likely Realities. The reconnaissance Method helps you decide the bounds of your question and your approach to data collection. Evaluation helps you analyze the accuracy and usefulness of your data. At the Alternative Analysis stage, you develop multiple theories and test their robustness. At the Likely Realities stage, rank your solutions by the degree of confidence. For Reconnaissance, use the Search Tree method to reduce the range of answers as quickly and easily as possible. Think of the Search Tree method as an adult version of 20 questions. Ask questions that, when correctly answered, will define the boundaries of the search area most effectively. What one detail, when known, would narrow the search space the most?
11. When you do Reconnaissance, a lack of information about a potential customer segment might indicate an underserved market. When REI, a major US outdoor gear retailer, started researching millennials' attitudes towards wilderness creation and equipment, they were surprised by the lack of information. They rightly suspected a market gap and piloted a new-sub brand that addressed a brand new audience.
12. Use the Chess Tournament technique to avoid cognitive biases and improve group decisions in uncertain situations. Identify four competing hypotheses and collaboratively spend 15 minutes to prove each approach. Now spend 15 minutes to prove why each solution won't work while others attempt to defend it. When a solution fails, add a new one. The Chess Tournament forces teams to argue for and against double-check assumptions.
13. Step 2 of ROGUE is to Organize your Forces. Model the complex balance of forces that keep your current system in equilibrium. Every system has six elements: nodes, links, inputs, outputs, rates and frequencies. Nodes store inventory, and links make inventory flow across nodes. Inputs measure the potential added to the system, and outputs measure the potential subtracted. Rates measure the transfer speed between nodes, and frequencies measure how often transfers happen.
14. Step 3 of ROGUE is to Generate your Futures. Leverage simulations to project and prepare for a range of scenarios from 100X success to massive failure. Simulations answer three key questions: Uncertainty- the likelihood of an event occurring, Impact- How significant its influence will be, and Timeline- when these uncertainties and impact will manifest. Simulations can rapidly accelerate organizational learning, identify unlikely opportunities and prevent threats. Simulations don't need to be complex or challenging programs run by Fortune 100 companies. You can realize 80% of the value can be realized with just 20% of the right effort. Use a simple paper and pencil exercise with some reconnaissance, discussions and a couple of spreadsheets. What's important is to structure the simulation and ask the right questions.
15. When COVID-19 hit, Amazon hired an additional 175000 employees in just 90 days to handle increased demand. Amazon's leaders could act decisively to rewire links and scale the capacity of nodes because they had a comprehensive system model and detailed scenario planning. That's because Amazon employs the highest number of economics Ph.D. in the United States to run simulations and prepare for possible futures.
16. Step 4 of ROGUE is Uncouple Your Opportunities from Threats which aims to shift the probabilities of the identified threats and opportunities in your favor. First, identify Trigger Points, the parts of the system most sensitive to change. Second, find ways to nudge the Trigger Points to shift the system to your advantage. Third, determine the best sequence and time to address your threats and opportunities. Finally, design your strategy to shift the probabilities of these events.
17. Step 5 of ROGUE is Experiment. Create a portfolio of experiments to respond strategically to the threats and opportunities identified. A well-balanced portfolio of experiments increases the probabilities of success and minimizes the downsides of failures. Your portfolio should have three categories of experiments to serve different goals. Growth experiments are those that can enable your 100x outcome. Sustaining Experiments protect the existing value and decrease the chance of an ugly outcome. Finally, Insurance Experiments increase resilience when bad futures occur.
18. A cross-sectoral study at 103 firms over 23 years shows that R&D investments had twice the impact on the market cap as investments intangible assets. However, returns vary based on what you optimize the portfolio of experiments for. Huawei averaged 10% annual return on R&D while Xiaomi averaged just 5-6%. Huawei sought to dominate the 5G ecosystem while Xiaomi just aimed to retain customer loyalty in a rapidly-changing market.
19. To encourage genuinely innovative experiments and not-safe ones to incentivize smart failure. Reward employees who deliver quality experiments instead of only those whose experiments were successful. Good experiments are those that help the organization learn more about the future. Define risk bands for your team. Any reasonable experiment which falls within the upper and lower risk limit should not be penalized. Zombie projects live on for years and lock up valuable resources because teams are reluctant to admit failure. Create incentives for your team to kill their zombie projects. Offer bonuses and appreciation for those teams that cut their losses early.
20. Companies often seek a single large solution when faced with a fundamental threat. But a big bet on a single experimental approach can lead to unintended second and third-order consequences. Instead, a well-balanced portfolio of dozens of low-impact experiments can collectively produce a high-impact outcome when probabilities add up to create decent odds of success.

Summary

The world has become more volatile than ever, with once-in-a-lifetime events happening once a decade. Jonathan Brill calls them Rogue Waves. But organizations and management theories have been designed for stable operating environments. This book provides actionable frameworks to reduce risk, build resilience and best position your organization to take advantage of future rogue waves.

Questions and answers

What are some preventive measures that can be taken to minimize the impact of rogue waves?

View answer

The book suggests that organizations can reduce the risk and impact of rogue waves by designing their management theories for volatile environments, building resilience, and positioning themselves to take advantage of future rogue waves.

How can an organization maintain stability in the face of rogue waves?

View answer

An organization can maintain stability in the face of rogue waves by reducing risk, building resilience, and positioning itself to take advantage of future rogue waves. This can be achieved through actionable frameworks designed for volatile environments.

View all questions

Ask follow up

Assess your threats and opportunities

1. Horizon scanning

   Identify the top ten economic, technological and social undercurrents that could create the next rogue wave and impact your business. These could include trends like changing demographics in the West, the rise of Asia and the impact of emerging technologies like 5G and IoT. For each of them, list the high impact changes in politics, markets and consumer behavior they could cause.

2. Identify implications for your organization

   After you have listed the significant undercurrents relevant to your business, identify the risks and opportunities they could create. Risk can be modeled using the FOES Framework: Financial Risk, Operational Risk, External Risk and Systemic Risk. Since your junior staff is closest to ground reality, train them to keep a lookout for the right issues and install organizational mechanisms to ensure warnings are heeded.

3. Identify response window and build an indicators dashboard

   Your response window is the period between the earliest time the changes become relevant to you and the latest time your organization can still course correct. Set up a dashboard to systematically track threats and opportunities. Review your Four FOES Dashboard every quarter and do an in-depth assessment every 12 months.

The rogue method

When a rogue wave hits, it will be the process you have installed, not your individual performance, that will drive results. To prepare your organization, you must provide your team the training they need to look out for rogue waves, the processes that will enable them to speak up and the confidence that they will be heard. The ROGUE method is a broad set of mental models to build organizational resilience to handle rogue waves.

Questions and answers

What insights does 'Rogue Waves' provide into how preparation for systemic threats has influenced corporate strategies?

View answer

'Rogue Waves' provides insights into how preparation for systemic threats, such as pandemics or financial crises, can influence corporate strategies. It emphasizes the importance of having processes in place to handle these 'rogue waves'. The book suggests that it's not the individual performance, but the process installed that drives results during such events. It advocates for training teams to identify these threats, establishing processes for communication, and instilling confidence that their voices will be heard. This approach, known as the ROGUE method, is designed to build organizational resilience to handle such systemic threats.

How can a startup use the ROGUE method to build resilience against rogue waves?

View answer

A startup can use the ROGUE method to build resilience against rogue waves by developing a broad set of mental models. This involves providing the team with the necessary training to identify potential rogue waves. Additionally, it's important to establish processes that encourage team members to voice their concerns and ensure that their inputs are valued and considered. This collective approach helps in building an organization that is resilient and capable of handling unexpected challenges or 'rogue waves'.

View all questions

Ask follow up

The ROGUE framework begins with the Reality Test stage, used to deeply understand your present state. The Organize Your Forces step helps you model the forces that keep your current system stable. Step three is to Generate Your Futures through simulations to identify potential opportunities and threats. Step four is Uncouple Opportunities from Threats to identify where and how to intervene. The fifth step is Experiment, where you build an experiments portfolio to maximize your odds of success.

Questions and answers

How can the lessons from the book Rogue Waves be applied in today's business environment?

View answer

The lessons from the book 'Rogue Waves' can be applied in today's business environment by using the ROGUE framework. This involves understanding your current state (Reality Test), modeling the forces that keep your system stable (Organize Your Forces), identifying potential opportunities and threats through simulations (Generate Your Futures), uncoupling opportunities from threats to identify where and how to intervene (Uncouple Opportunities from Threats), and building an experiments portfolio to maximize your odds of success (Experiment). This approach can help businesses prepare for and profit from systemic threats, turning them into outsized opportunities.

What are potential obstacles companies might face when applying the ROGUE framework, and how could they overcome them?

View answer

Potential obstacles when applying the ROGUE framework could include resistance to change, lack of understanding of the current state, difficulty in modeling forces, inability to identify opportunities and threats, and failure in experimentation. Overcoming these obstacles involves fostering a culture of change, investing in training and development to understand the current state, using data and analytics for modeling, employing strategic thinking for opportunity and threat identification, and promoting a culture of innovation and learning from failures for successful experimentation.

View all questions

Ask follow up

Step 1: reality test

Organizations often spend significant effort collecting data on the past to forecast the future but far less to understand the present. But if your present model is wrong, your future projections are likely to go wrong as well. Use the REAL framework to investigate current reality.

1. Reconnaissance

   Decide what decisions have to be made and the degree of proof required to make them and estimate appropriate boundaries to the search. An excellent way to start reconnaissance is to identify the knowns and unknowns. Known Knowns are the things that we are aware of and understand. Equally clear are Known Unknowns, the things that we want to find out but don't have information on yet. Unknown Knowns is available information that you may have missed due to cognitive biases. Finally, there are Unknown Unknowns, which is information that we are neither aware of nor understand. An excellent way to brainstorm possible Unknown Unknowns is to consider counterfactuals or what-ifs. Unknown Unknowns could be new technology, unexpected competition, a shift in geopolitics etc. While you cannot research them, listing them down helps you expand the problem understanding.

2. Evidence collection

   Decide on a standard of proof before you collect evidence. Many organizations rely on sources like newspapers, trade journals and industry analysts. However, high-risk decisions need a deeper dive. The best quality information usually comes from academic writing or direct source data analysis. To determine whether an information source is valuable, evaluate it across three factors:

3. Focus — Does the data have a detailed focus on the subset relevant and limited to your question? If you want to know LA traffic patterns, data for the US is useless.
4. Givenness — Does the information say something new that provides fresh insights into your problem?
5. Relevance — Will the information help you generate new insights?
[/item]
6. Alternative analysis

   Take the information gathered and create multiple theories of reality. When you have to deal with complex and ambiguous data, you could be easily prone to cognitive biases. To avoid them separate information collection from analysis and systematically evaluate alternatives. Use the Chess Tournament approach to evaluate multiple theories of reality generated. Identify four competing hypotheses and spend 15 minutes trying to confirm each. In the second hour, one person spends 15 minutes to demonstrate why each solution won't work while others attempt to defend it. When a solution fails, another is added. The structured brainstorming approach biases and forces teams to second-guess conclusions and double-check assumptions. Finally, for every theory that survives, establish the impact if your theory is invalidated.

7. Likely realities

   Ensure you have explored the full range of options, given the level of proof you have. Confirm if you have subjected all possible theories to the same level of logical scrutiny. Make an honest assessment of how confident you are in your conclusions and rank them. Now you have a clear picture of your current reality.

Step 2: observe your system

Step 2 requires you to model the forces that keep your current system stable to determine what can cause the system to change or break. A system becomes unstable when there is a change in the balance of forces.

First, identify the boundaries of the system in which you are working. Every system comprises the same elements: nodes, links, inputs, outputs, rates and frequencies. Nodes are locations within a system that contain inventory. Links are pathways to move inventory from one node to another. Inputs measure how much potential is added to the system. Outputs measure how much potential is subtracted from the system. Rates are the speeds at which inventory moves from one node to another. Frequencies measure how often inventory moves between nodes.

Questions and answers

Could you elaborate on the concept of nodes and links as explained in Rogue Waves?

View answer

In the context of the book 'Rogue Waves', nodes and links are components of a system. Nodes are locations within a system that contain inventory. They can be thought of as points where value is stored or processed. On the other hand, links are pathways that connect these nodes, allowing for the movement of inventory from one node to another. They represent the relationships or interactions between the nodes. The movement of inventory through these links can be measured in terms of rates (the speed of movement) and frequencies (how often the movement occurs).

How feasible is it to implement the ideas from Rogue Waves, such as system identification, in real-world scenarios?

View answer

The feasibility of implementing ideas from Rogue Waves, such as system identification, in real-world scenarios is high. System identification involves understanding the elements of a system, including nodes, links, inputs, outputs, rates, and frequencies. This approach can be applied to various real-world scenarios, such as supply chain management, network analysis, and business process optimization. However, the effectiveness of implementation depends on the complexity of the system, the accuracy of the identification, and the adaptability of the system to changes.

View all questions

Ask follow up

Take the example of a distribution chain. The factory pushes new products as system inputs. Multiple warehouses are nodes that stock inventory. Vehicles are links that move products across warehouses. The mode of transport depends on both the Rate of transfer and Frequency of transfer. Finally, the seller is paid(output) when the product is delivered.

Questions and answers

What are the broader implications of the case study on distribution chains presented in Rogue Waves?

View answer

The broader implications of the case study on distribution chains presented in Rogue Waves are that businesses need to be prepared for unexpected events, or 'black swan' events, that can disrupt their distribution chains. These events can include pandemics, financial crises, or other systemic threats. By understanding the structure and function of their distribution chains, businesses can identify potential vulnerabilities and develop strategies to mitigate risks. This can help businesses not only survive these events, but also potentially profit from them by seizing new opportunities that arise.

How does the example of a distribution chain in "Rogue Waves" challenge existing paradigms in business logistics?

View answer

The example of a distribution chain in "Rogue Waves" challenges existing paradigms in business logistics by presenting a system where the factory pushes new products as inputs, warehouses act as nodes stocking inventory, and vehicles serve as links moving products across warehouses. The mode of transport depends on both the rate and frequency of transfer. This model challenges traditional logistics by emphasizing the importance of flexibility and adaptability in response to systemic threats, such as pandemics or financial crises. It suggests that businesses should be prepared to alter their distribution strategies quickly and efficiently in response to changing circumstances.

View all questions

Ask follow up

1. Map the System — System models provide clarity and help you focus on the small changes that will have the most significant impact. Identify the nodes, links, inputs and outputs that you already understand. Place black boxes around the ones you don't. Identify which links are deterministic and which are probabilistic.
2. Identify the system's equilibrium — There are balancing and reinforcing loops that keep your system under equilibrium. Causal loops help you predict second and third-order effects of changes. Draw directed arrows to connect the nodes based on links in the system. Sometimes causal loops can be recursive. Balancing loops slow the system down while reinforcing loops that accelerate small changes. These are represented by - and + signs, respectively. Left unchecked, a reinforcing loop can rapidly produce an exponential growth situation. Causal loops help you identify which relationships are still unknown and what indicators must be tracked to receive early warnings.
3. Identify subsystems to investigate — Based on the previous steps, identify subsystems around black boxes and recursive loops that are important to understand. Perform direct investigations where possible, as described in the Reconnaissance section. For subsystems that you cannot directly investigate, infer what is going on by looking at the rates and frequencies throughout the system.
4. Imagine and list possible causes of disruption — Ask what could cause the balancing and reinforcing loops to accelerate, decelerate, reverse direction or snap. Evaluate the impact of major economic, social and technological undercurrents on your system.
5. Identify most important uncertainties — Which uncertainties are most important to understand and manage? From the above list, select disruptions that are feasible within the timeline of your concern. Then identify the system elements where you can intervene to handle the disruptions.

Step 3: generate your futures

Simulations are a risk-free way to analyze how actions affect possible scenarios and generate a range of possible futures. Simulations help us understand three key things:

1. Uncertainty — The likelihood of an event
2. Impact — The influence on your organization
3. Timeline — If the uncertainties and impact are relevant within the timeline considered.

While organizations like Blackrock and Amazon use sophisticated mathematical models, simulation follows the 80/20 rule. A simple pen and paper approach supplemented by spreadsheets can get you surprisingly far if you know how to structure the simulation and ask the right questions. Here is a simple sequence to simulate futures.

Questions and answers

How can the lessons from Rogue Waves be applied in today's business environment to turn threats into opportunities?

View answer

The lessons from Rogue Waves can be applied in today's business environment by preparing for systemic threats and turning them into opportunities. This involves understanding the nature of these threats, developing strategies to mitigate their impact, and identifying ways to leverage them for growth. For instance, businesses can use mathematical models and simulations to predict potential threats and devise appropriate responses. Furthermore, they can also explore new markets and opportunities that may arise as a result of these threats.

How can a startup use the simulation approach discussed in Rogue Waves to prepare for potential threats?

View answer

A startup can use the simulation approach discussed in Rogue Waves to prepare for potential threats by following a simple sequence to simulate futures. This involves using a simple pen and paper approach supplemented by spreadsheets. The key is to know how to structure the simulation and ask the right questions. This method follows the 80/20 rule, which suggests that a significant outcome can be achieved with limited resources. By simulating different scenarios, startups can anticipate potential threats and devise strategies to mitigate them.

View all questions

Ask follow up

1. Build your tree of possibility

The Tree of Possibility helps you expand your universe of possibilities and present a range of plausible outcomes from optimal success to disaster. Start with a clear future outcome for each iteration and work your way backward to the present. Systematically think through what possible sequence of events and actions can lead your organization to that outcome. Make sure you model three types of outcomes:

The Good — Envision a transformational goal that leads to a 100X future. 10x goals are often not ambitious enough. It takes seven years to get a category product to scale in many fields. When we factor in the cost of capital and existing competition, a 10x improvement is barely sufficient.

The Bad — Reframe your current goal as the minimum acceptable outcome.

The Ugly — Imagine failure to the fullest extreme. Ask ""what is the worst that could happen"" and assess likelihood and impact. Prepare for these outcomes by determining what steps you can take now to minimize their likelihood, recover from their impact or leverage them to your advantage.

If a threat or opportunity comes up repeatedly across multiple scenarios, it is worth focussing on.

2. List your miracles

Many futures depend on one or more ""miracles"" to occur. Determine what extraordinary things must fall in place for each modeled scenario across the Four FOES - the Financial, Operational, External and Strategic drivers. Find out what actions you can do to shift the odds in your favor and make them more likely to occur. Identify what indicators to track to know if these ""miracles"" have occurred. Finally, prepare contingency plans to respond if these don't occur.

3. Maintain a chart with a range of possible futures

For each future, estimate the likelihood of occurrence and potential opportunities or threats for your organization. Qualify each of your threats and opportunities by the degree of uncertainty, impact and the time you have to prepare. Create a ranked list of opportunities and threats. Identify the key events that can cause each future and what indicators you can track to see them coming. Finally, rank the actions you can take to shift the future to your advantage.

Share the future scenarios with your organization inevitably generates robust discussion and feedback. It results in better planning and the ability to respond well when unplanned scenarios occur. Run scenario planning and simulation programs regularly.

Step 4: uncouple your opportunities from threats

Now it's time to identify points in the system to intervene in and shift probabilities in your favor. There are four steps to shift probabilities in your favor:

1. Identify trigger points

Trigger points are interactions where a small amount of effort can release a large amount of pent-up energy. Creating mechanisms to nudge systems at trigger points is a powerful way to shape change in your favor. The most successful businesses see these pent-up forces and prepare themselves to ride the wave when it unleashes. Use the VEGAS framework to systematically identify trigger points:

[list]
2. Visibility — Is it easy to identify problems in the system?
3. Effect — What mundane events can cause second-order effects that lead to failure?
4. Gestation — What is the time gap between the action and its result?
5. Accessibility — Do you have access to the vulnerable points to fix them?
6. Security — How likely are critical components to fail? What self-correction or recovery mechanisms exist?

Make a list of interventions to mitigate threats and create opportunities. Cluster them into low, medium and high impact interventions.

For both dashboards, the first column lists FOES, Financial, Operational, External and Strategic events that could impact your organization. The second column identifies undercurrents that would drive these FOES risks. The remaining columns assess the impact of these issues over 3,6,12, and 24 months. The bottom of the dashboard has triggers to watch out for.

Questions and answers

How can the lessons from "Rogue Waves" about identifying potential threats be applied in today's business environment?

View answer

The lessons from "Rogue Waves" can be applied in today's business environment by using the FOES (Financial, Operational, External, and Strategic) model to identify potential threats. This involves listing potential events that could impact your organization, identifying undercurrents that would drive these risks, and assessing the impact of these issues over different time frames (3, 6, 12, and 24 months). It's also important to watch out for triggers that could indicate a potential threat is becoming more likely.

How can the scenario running and experimentation ideas from "Rogue Waves" be implemented in real-world business scenarios?

View answer

The scenario running and experimentation ideas from "Rogue Waves" can be implemented in real-world business scenarios by identifying potential Financial, Operational, External, and Strategic (FOES) events that could impact your organization. These events can be listed in a dashboard along with the undercurrents that could drive these risks. The impact of these issues can then be assessed over different time frames such as 3, 6, 12, and 24 months. Triggers to watch out for can be identified at the bottom of the dashboard. This approach allows businesses to prepare for and potentially profit from systemic threats by turning them into outsized opportunities.

View all questions

Ask follow up

There are four actions that you can take to shift the impact of uncertainties:

1. Accept
2. Avoid
3. Mitigate
4. Experiment to fuel innovation

For each critical threat and opportunity, analyze which approach is suitable.

Step 5: experiment

When you can't avoid, accept or mitigate risk, you need to experiment to innovate your way around the challenge. Make failure cheap so that your team carries out more small-scale experiments.

1. Plan your experiments like an investment portfolio

Experiments are investments, and organizations must adopt a portfolio approach as a strategic response to FOES of growth. Experiments fall into three categories:

[list]
2. Growth Experiments — They enable your 100X outcome. They have a high risk of failure but promise disproportionate payoffs.
3. Sustaining Experiments — These experiments protect your existing interests and reduce poor outcomes.
4. Insurance Experiments — These improve organizational resilience to negative scenarios.

Balance the efforts you spend pursuing, growing, sustaining and insurance innovations. The rapid pace of change requires us to run experiments in parallel. For each experiment, consider the timing and sequencing that will make it effective.

Shortlist experiments that you can take advantage of if they are successful. Do the experiments that will provide the most important information first, even if they are highly risky. Finally, maintain a repertoire of experiments that you can perform if external conditions change or your experiment portfolio behaves differently than expected.

Questions and answers

What are the key takeaways from "Rogue Waves" that entrepreneurs or managers can act upon?

View answer

The key takeaways from "Rogue Waves" that entrepreneurs or managers can act upon are:

1. Prepare for black swan events: These are unpredictable events that have potentially severe consequences. By preparing for these, businesses can mitigate their impact.

2. Profit from systemic threats: Instead of just preparing for these events, businesses can also find ways to profit from them. This requires a shift in mindset and strategy.

3. Experimentation: The book suggests conducting shortlist experiments that could be beneficial if successful. These experiments should be prioritized based on the importance of the information they could provide, even if they are risky.

4. Adaptability: Businesses should maintain a repertoire of experiments that can be performed if external conditions change or if the experiment portfolio behaves differently than expected.

How can a startup leverage the experimental approach discussed in Rogue Waves for growth?

View answer

A startup can leverage the experimental approach discussed in Rogue Waves for growth by shortlisting experiments that could provide significant advantages if successful. These experiments should be prioritized based on the importance of the information they could provide, even if they carry high risk. The startup should also maintain a repertoire of experiments that can be performed if external conditions change or if the outcomes of the current experiments deviate from expectations. This approach allows the startup to be agile and adaptable, turning potential threats into opportunities for growth.

View all questions

Ask follow up

When you set a budget, consider each experiment's impact on the overall portfolio's long-term optionality, near-term impact, resilience and performance. Your financial goal must be to manage overall project risk instead of individual experiment risks. Create a spread of experiments with high and low impact and high and low success rates. Have clear rules for when to initiate experiments and when to stop them.

Questions and answers

What are potential obstacles companies might face when trying to manage overall project risk and how could they overcome them?

View answer

Potential obstacles companies might face when trying to manage overall project risk include lack of understanding of the overall project risk, focusing too much on individual experiment risks, and not having a diverse spread of experiments with varying impact and success rates. To overcome these obstacles, companies should focus on the overall project risk instead of individual experiment risks. They should also create a diverse spread of experiments with high and low impact and high and low success rates. Additionally, they should have clear rules for when to initiate and stop experiments.

How can a startup use the concept of long-term optionality to grow?

View answer

A startup can use the concept of long-term optionality to grow by setting a budget that considers each experiment's impact on the overall portfolio's long-term optionality, near-term impact, resilience, and performance. The financial goal should be to manage overall project risk instead of individual experiment risks. The startup should create a spread of experiments with high and low impact and high and low success rates. Clear rules for when to initiate and stop experiments should be established.

View all questions

Ask follow up

Incentivize smart failure to encourage genuinely innovative experiments and not safe ones. Reward employees who deliver quality experiments instead of only those whose experiments were successful. Good experiments are those that help the organization learn more about the future. Protect team members who perform experiments within a defined risk band.

Questions and answers

What is the potential for the ideas in "Rogue Waves" about rewarding quality experiments to be implemented in real-world scenarios?

View answer

The potential for implementing the ideas about rewarding quality experiments in real-world scenarios is significant. Many organizations are recognizing the value of innovation and experimentation in driving growth and staying competitive. By incentivizing smart failure and rewarding employees who deliver quality experiments, companies can foster a culture of innovation. This approach encourages employees to take calculated risks and learn from their failures, which can lead to breakthrough ideas and solutions. However, it's important for organizations to define a risk band to ensure that the experiments do not lead to catastrophic failures.

How has the concept of incentivizing smart failure in 'Rogue Waves' influenced corporate strategies?

View answer

The concept of incentivizing smart failure, as discussed in 'Rogue Waves', has significantly influenced corporate strategies. It encourages companies to reward employees who conduct quality experiments, regardless of whether they are successful or not. This approach fosters a culture of innovation and risk-taking within a defined risk band, as it values the learning and insights gained from the experiment. It shifts the focus from success to learning, which can lead to more innovative solutions and strategies. This can help organizations better prepare for and profit from systemic threats, turning them into outsized opportunities.

View all questions

Ask follow up

Bigger and more frequent rogue waves are not only threats. They also contain within themselves immense opportunities. With the proper frameworks and organizational processes, you can be prepared to take advantage of the next rogue wave as Amazon did.