12 September 2013:

Industries are exposed to systemic risks (the risk of collapse of an entire industry/market) driven by underlying interdependencies (examples include the recent financial crisis, offshore oil spills and the Japanese nuclear disaster). An article from Donaldson & Schoemaker (2013) promotes the need and opportunity for industry wide collaboration with regard to the management of such systemic risks through the identification of weak signals and by engaging “Pelican Gambits”:

It is proposed that business leaders of industries should find better ways to manage future industry-level risk to prevent disasters through the identification of the underlying industry dynamics. With the tactic of the “Pelican Gambit”, organisations within industries can move towards cooperation in a highly competitive environment that limits systemic risk to the firm, industry and society for low probability/high impact catastrophic scenarios.

In a Pelican Gambit, the pelican chooses a short-term sacrifice for the purpose of better managing long-term risk (in chess, a player appears to sacrifice a piece or position in order to later achieve a superior strategic position). It is suggested that business leaders:
1) Search for weak signals to identify risk with low probability but high potential impact, utilising scenario planning for a long-term and wide-angle perspective;
2) Identify other concerned industry leaders to form a coalition that is powerful enough to challenge and counter dangerous industry norms, behaviours or strategies; and
3) Discuss future scenarios, using plausible worst case scenarios, to understand risks and determine ways that the industry can deal with them.

The authors include a practical checklist to determine the potential for self-inflicted industry risk, which covers the following six dimensions:
1) Is pace of innovation high? (criteria: new designs and/or new technologies for products and services [few/many], pressure to adopt the new design or technology [mild/enormous], unintended consequences [minor/major]);
2) Does “hush” prevail? (criteria: secrecy pressure [mild/heavy], public allegations [few/many], conspiracy of silence [absent/abundant]);
3) Are experts few? (criteria: information asymmetry [low/high], expert substitutability [low/high], expert reviews [low/high]);
4) Are regulators too weak? (criteria: regulation history [excellent/poor], enforcement power [high/low], respect for industry regulators [high/low]);
5) Is too much hidden? (criteria: information access for customers [high/low], customer communication [high/low], nagging unease about practices [low/high]); and
6) Are critics dismissed (criteria: how are industry critics treated [open minded/unwelcome], are critics invited to speak at meetings [yes/never], what happens to whistleblowers [treated fairly/ostracized]).

Donaldson, Thomas & Schoemaker, Paul J. H. 2013, “Self-Inflicted Industry Wounds: Early Warning Signals and Pelican Gambits”, California Management Review, Winter, vol. 55, no. 2, pp. 24-45.

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