War and Strategic Risk Management

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Author: Manu Steens

In this text I write my own opinion, not that of any organization.

By now everyone has an idea of what war means, which is why I start from a different starting point for this blog, strategic risk management.
Most people understand the concept of risk and understand mainly the operational risks, such as human error and system errors, but what is meant by strategic risks?

A strategic risk is a risk associated with an organization’s strategic decisions. A strategic decision can be any decision that determines the long-term survival of the organization. Such decisions are made within the framework of the mission and vision of each organization and have some consequences for the concept of risk.

A specific strategic decision is usually unique. Singular, so not frequently repeated throughout the history of the organization. The associated risks are therefore exceptional in nature and have no prior history. Determining the probability (‘p’) of occurrence of such risks (‘R’) is therefore always a perilous undertaking. They are pure unknowns and pure uncertainties. But, on the basis of rigorous thinking, one can indeed determine its impact (‘i’). The definition of risk as a product of opportunity and impact (R=p.i) therefore, in my opinion, does not apply to (most) strategic risks. As a result, they have a gap in their evaluation compared to traditional (often operational) risk management. This gap manifests itself in uncertainty.

Starting a war is such a strategic decision. The chance of success (with success as an event) is a priori unknown. So winning the war is an uncertainty.

What happens to uncertainties? People can’t handle that very well. We prefer certainties, even if the associated chances of risks are small. People want to know their chances and look for remedies. One such means is ‘uncertainty absorption’. This has a lot to do with systematically explaining away uncertainties, and replacing them with (personal) certainties.

Uncertainty causes stress and stress reduces the capacity of reasoning and deciding. Some even feel anger rising and we all know that making decisions in such a state is not optimal. That is precisely why we use a different phenomenon. We do a lot of mental gymnastics to replace uncertainty with an illusion of what we consider to be a credible certainty. This replaces a series of possible future outcomes with a single estimate.

To make that assessment, we use the past. We scan our history for similar situations and then we state that the past predicts the future. We use broad estimates of similar situations. This is necessary because the strategic decision is so unique. People start to cherish analogous reasoning and pay too little attention to the differences with the present. When the past gives that false sense of certainty, we eliminate any perception of unpredictability.

Uncertainty absorption can thus be defined as “The search for inferences in a large body of evidence. Then we communicate similar cases instead of the actual evidence from that body of evidence.”

A phenomenon that takes place at every layer of an organization.

One reason uncertainty absorption happens, even in warfare, is because many leaders don’t stand with their bones in the mire of the trenches. That way they don’t want to know what could happen, they do want to base their decision on a single possibility. Illusion goes through similar things to interpretations to move on to possibilities, probabilities and certainties. A wide spectrum of possibilities is thus reduced to a single one. As a result, the decision-maker in the C-suite is severely limited in his judgment as well as the correctness of his view of the future.

An important consequence is that strategy is determined by people with a adjusted version of reality. The further away the leader is from everyday reality, the greater the gap between strategic objectives and the actions to carry them out. As a result, it is difficult to answer the four important questions of strategic management correctly:

  • A: What unique value do we want to deliver to our customer (in a war: ‘our’ citizen)?
  • B: How do we create that value?
  • C: Where do we create that value?
  • D: How do we secure that value from disruption (in the future)?

If we take as a case the situation of the Russian population in Ukraine, before the start of the invasion, then there are some reservations to be made on the basis of these four questions.

  • A: It seems ok to me to want security for the Russian citizens in Ukraine.
  • B: Putin chose war. (The question is whether this makes sense with question D.)
  • C: He wants to create that security in Ukraine.
  • D: Securing the safety of one group can never succeed with a war against another. There was already a lot of resentment through the past and that resentment is only increasing with this war. In the long term, he thus creates a more unsafe situation.

This strategic decision (waging war in Ukraine) therefore entails the risk that the insecurity for the Russian population in the future Ukraine may be greater than before.

Unless the ‘trick with the pigeon would work’, as he applied it to the Chechens at the time, which made them obedient partners. In short, the strategy in the war in Chechnya was: hit them, don’t kill them, reach out to them and then rebuild their country. That this can work here, however, is uncertain because many Ukrainians have fled the country, and that in numbers that the Chechens could not. In my opinion, this ‘trick with the pigeon’ will not work here, with the main reason being that the leader is too far removed from the actual situation.

(for your information: https://historianet.nl/maatschappij/geschiedenis-van-rusland/tsjetsjenie-van-ruslands-zorgenkind-tot-poetins-jaknikker)

Outsourcing processes or services or not – What are strategic risks that you have to consider ?

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Author: Manu Steens

In this article I write my own opinion, not that of any organization.

The economic and financial cycle waves often lead to savings. One of the methods that is being tried is outsourcing services. In addition to the question as to whether this is a saving, because people often intervene with other budgets, which means that a cost is diverted from one’s own personnel costs, there are a number of criteria that I think should all be checked off. This before deciding to outsource a task in the short or longer term. There are a number of strategic risks involved.

The concerns are as follows:

  1. Is the service or process a core competence of the organization that should be kept in-house, even if it seems that this is an adverse cost? In my opinion, for many organizations since the information age came into being, ICT and all related processes are things that meet this. After all, it should not be forgotten that Flanders is increasingly evolving into a knowledge society. And knowledge depends one-on-one on information and information systems. ICT outsourcing provides an extra link in the risk chain, and reduces the involvement of ICT professionals with your business. The fact that there is a contract almost always means that there are gaps in the service, for which one has to pay extra.
  2. Is it really less expensive to outsource the process, if one considers all in-house and out-house life cycle costs? After all, an organization often continues to pay for the risks associated with the process that has been outsourced. One therefore remains morally obliged to remain awake to the risks associated with the process. Outsourcing the service does not outsource liability for it as long as it is done in the name of one’s own organization. Further, a contract between the two parties does not mean that the quality of the service is guaranteed at the same level. After all, another company often subscribes to different values. And a contract, as a legal binder, therefore has backdoors too easily.
  3. Is the process more expensive to carry out in-house, or can it be redesigned to reduce costs sufficiently to adequately meet the costs saved in outsourcing? If one can redesign it but doesn’t, one loses skills because off the outsourcing, and the opportunities to improve in one’s own field through cross-pollination with related or other services.
  4. Is there an investment involved in outsourcing the service, and if so, can this cost be easily recouped with the savings? Conversely, if outsourcing meant liquidating equipment, would the proceeds of sale mean anything in the return on the investment of outsourcing? This is a purely financial criterion. If the CFO does not address this, it is a missed opportunity or an unnecessary risk that one runs, depending on the facts post-outsourcing.
  5. If outsourcing is disappointing, can the service be easily insourced again in the future? Are the lost knowledge and skills therefore easy to reacquire? With the current ‘war for talent’, this is not obvious. And people who have been relocated will not like to be placed from one job to another on an ad hoc basis. People who are not permanently appointed will have found another job by now, perhaps even better paid. If insourcing is not successful, a strategic mistake has been made from the start.
  6. Does management have enough time to foresee a transition to outsource it? But do they also have enough time to foresee to insource it again if the outsourcing is disappointing? Because such operations are not low-hanging fruit, and require efforts from top management. It should not be a light decision. After all, top management is responsible for picking the high-hanging fruit, not for picking the low-hanging fruit .
  7. Could renting equipment or asking the vendor of equipment for this service (such as software vendors) provide a lifecycle with a solution that is doable, other than outsourcing? For example, by training an AI to support a service with software. If this is possible, would this mean a positive influence of innovation and therefore efficiency? In the short term, or only in the long term?
  8. What if the contractor goes bankrupt, despite ‘good papers’ when the contract was awarded?

In my opinion, the answer to all these questions must be that outsourcing is the only meaningful answer, otherwise, when in doubt of an argument, it is better to keep the service in-house.

This does not alter the fact that outsourcing tasks can be useful. But especially when the viability of a new service has to be determined, and at a start-up, during the transition period in which the service has to prove itself. In this way, the new service can be optimized not only with cross-pollination with other own services, but also with the experiences of consultants, at the most important moments of the life cycle, namely the design and the teething problems period.

It is best not to outsource essential management needs of an organization. When you have them in the organization, you have unique assets in your hands. Outsourcing skills means that in the long run the cost of outsourcing will increase because one gets stuck by losing the skills.

CAW (Combined Arms Warfare) and climate drought

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Author: Manu Steens

In this article I write my own opinion, not that of any organization.

We write February 20, 2023. A Flemish newspaper writes “Drought plunges Argentina into a perfect storm – Argentina is groaning under the most severe drought in sixty years. The whole world will feel that”.

On the internet, journalists explain that neither Ukraine nor Russia are making progress in terms of gaining ground, and that the West’s arms supplies to Ukraine matter less than how those weapons are used. CAW – Combined Arms Warfare – is the new magic word. (More information about CAW can be found at Combined arms – Wikipedia)

One question is, does it make sense to post this wisdom about CAW and Ukraine on the net? With the collection of his flying equipment, it seems that Russia could also be planning something similar. Furthermore, there is a chance that Russia wants more than that: will it apply hybrid warfare in total warfare? What if it attacks Ukraine’s economy by destroying grain production in the fields? The other countries in the world will have to step in with the food supply. What could such a future look like?

There are the following uncertainties here that I plot against each other:

  • Russia is actively or trying to eliminate Ukraine’s grain production or not;
  • other countries (not just the West) may or may not be able to provide sufficient assistance in terms of grain production.

This gives us the following possible futures:

1: The show goes on – Assisting succeeds and the grain of Ukraine is not destroyed by Russia. Ukraine can export its grain and generate income. The disappointing harvest in Argentina does cause increases in food prices. This is going to be felt by ordinary citizens in many countries and is going to cause inflation to rise.

2: Feeling hungry – Assisting succeeds and the grain of Ukraine is destroyed by Russia.

In addition to the rising food prices, famine is imminent in Ukraine. More people are seeking refuge in neighbouring countries. Aid organizations are providing more food packages to Ukraine.

3: Also hungry – Assisting is not possible and the grain of Ukraine is not destroyed by Russia. There is a famine that is spreading: countries that depend on foreign grain see their livestock shrink. Meat production in a number of Western countries is coming to a standstill or is shrinking sharply. In the southern hemisphere, too, there is a cry for help with regard to livestock. A number of grain exporting countries impose export restrictions. Part of the global food supply chain comes to a halt.

4: Human disaster – Assisting is not possible and the grain of Ukraine is destroyed by Russia. The global supply chain of cereals and meat products is partly at a standstill, but the production and export of beer and alcohol production is also experiencing serious problems. Not only Ukraine is experiencing a famine, parts of Africa were also dependent on the grain from Ukraine. Inflation is skyrocketing, reaching more than 10% year-on-year again. Certain foods are taken out of the basket that defines inflation, in order to try to moderate wages and not derail the economy. The number of suicides among ranchers is increasing.

Conclusion: regardless of whether the war in Ukraine increases in intensity, food prices come under attack, and world hunger is not getting any better. Sectors that depend on grain production are also coming under attack. Ostensibly, this is independent of the war, but given that Ukraine is a breadbasket for the world, one disaster here may fuel the other. So a conclusion may be that it is a bad time to go to war. But it always is.

Reconstruction Ukraine – what are key points ?

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Author: Manu Steens

In this article I write my own opinion, not that of any organization.

Ukraine is currently being shot into the Stone Age. The target par excellence is critical infrastructure: water and energy installations, as well as others, such as road infrastructure, ports and airports, do not come out unscathed.

The question then is, with what will remain of it, not only what it can look like, but especially what are key points for reconstruction.

On rough terrain, such as a broken road infrastructure, transport costs quickly rise to five times those of an intact road network. The financial cost has thus been demonstrated as an important risk for the supply chain.

Health care: care for the injured, but also the current tuberculosis and the still present corona pandemic and the flu wave and associated pneumonia, need for action: provide for a reconstruction of sick care.

Training: schools are needed to provide a renewed approach to training for future generations, but the infrastructure includes not only the buildings, but also the teachers, the classroom infrastructure, projectors, IT systems, course materials,…

Airports that have been destroyed must be rebuilt, not only for civil aviation, but also for military aviation. This is important for easy accessibility deep in the country, once there is peace.

The water supply needs to be redeveloped, debris cleared.

In order to rebuild that critical infrastructure, concrete mixers have to run, pumps move water, and therefore electricity is needed, for that in one of the most important first infrastructureworks the electricity nodes have to be rebuilt. In order to clear the debris and brick buildings, heavy machinery and vehicles are also needed on site. So transport will have to be possible, and one must provide fuel and people. Then nutrition is also needed.

With such reasoning we find out what is important for the reconstruction of the Ukrainian state, when we do this from scratch: a first attention should be given to the following sectors (not necessarily in that order) (non-exhaustive list)

  1. Agriculture and livestock farming and (sea) fishing as a basic link in the food chain.
  2. Food and beverage production and the hospitality industry, including drinking water sector
  3. Medicine, medicine and hygiene. They may be exhausted and run slower for a while, also due to recovery from past crises.
  4. Clothing for protection against weather conditions.
  5. Substances and simple chemistry (such as fuels, soap, calcium carbonate (for many applications), …)
  6. Advanced chemistry e.g. petrochemical sector products (e.g. for medicines).
  7. Materials such as clay, metals, glass, and building materials
  8. Electricity and other forms of energy (because then a lot can work where there are people who can work)
  9. Mobility / transport (because then factories can be supplied and the supply chain works back)
  10. Means of communication (because justice depends on it, but actually the entire society)
  11. Relaunch of the schools: what about the people who could not do their year?
  12. Politics: keeping predators at bay who want to take over the economic markets in the terminally ill country in order to make it easier to take the future markets
  13. Banks, with a key role for economic / financial transactions

What is important as a supporting skill is the specialized supply chain of many of these sectors. These include roads, railways, waterways, ports, airports, warehouses, cooling, production sites…

So a big interest of politics will be to facilitate those supply chains. A key role for her is to ensure that the different sectors work together to achieve optimal results. In order to get these things going, support from abroad is needed. Read the EU.

However, such a situation of reconstruction entails risks: threats and opportunities.

For example, every port that is set up threatens to become a hub of drugs, counterfeits, e-waste (waste import), weapons, illegal immigrants, etc.

The clearing of bombed-out apartments and critical infrastructure not only produces gravel, but also precious metals such as copper, which is wrapped in plastic. If one tries to remove this plastic by burning it, dioxins are released. They initially move in the air, then rain out and thus end up in the food chain or elsewhere in fauna and flora.

Due to the large future demand for vehicles, the country will become a market for second-hand and third-hand vehicles from Western European countries. Transport of such vehicles is known to transport a lot of waste in the cargo areas of these vehicles.

The high need for cheap means of communication will increase the demand for second-hand means of communication such as mobile phones and computers, causing second-hand devices to change hands again. In addition, a new reinstallation takes place, which greatly shortens the life cycle. That gives a false appearance of cost-benefit responsible means of communication.

Weak legislation and a lack of income from the country will tempt farmers to use very strong very unhealthy weedkillers to maximize their crops, which does not benefit the health of the customers.

Due to a shortage of police presence in the transition period to a rebuilt state, crime will flourish during that transition period .

A shortage of inspectors creates investors looking for pollution havens. Although, according to certain studies in the literature, this is often not the reason for attracting foreign investment. More often people are looking for many and cheap well-trained workers, for an abundance of skilled suppliers and for an environment with several other investors. A number of these are in themselves bottlenecks.

Longer-term investments are needed before they bear much fruit.

The destroyed country can become a haven for extremists.

The conclusion of all this is that peace in the short term requires a well-oiled government apparatus.

Ukraine, a view into the future. What can it look like?

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Author: Manu Steens

In this article I write my own opinion, not that of any organization.

Currently, President Zelensky claims that he wants peace, as he said to French-speaking countries, according to some social media. On the other hand, he first wants the Russians out of Ukraine and Crimea, according to the same social media.  Currently, Putin is raising money from friendly nations to revive his war. He recently raised $13.6 billion in one day. In addition, the ‘partial’ mobilization of 300,000 reservists is a fact. A smaller part of them (more than 80,000 soldiers) would already have been deployed in Ukraine, the rest will receive training. He also bought missile-like drones from Iran and is trying to reduce the western part of Ukraine to ruins in terms  of critical infrastructure.

What does this mean for the future? As in all wars, it is uncertain.  We can put some things against each other and some extreme futures next to each other.

A first uncertainty is who wins the war. What does that mean, by the way, to win this war?  For Ukraine, it is a matter of getting the Russian soldiers out, perhaps also from Crimea. For Russia, it may mean that it  can recapture the lost territories up to the Dnipro in a stable way.  But according to the Western media, the Russian soldiers are demotivated by the hard resistance and the lost areas. On the other hand, Russia, among other things, is shattering the energy supplies in Ukraine, which means a cold and icy winter and possibly death for millions. This can demotivate or motivate the Ukrainian soldiers.  Recapturing the territories is not easy which makes it uncertain what will happen.  That is a first axis: Ukraine wins versus Russia wins.  (Only in military terms.)

A second axis is what happens to Ukraine after the war. I look at this separately from the question if it will become a NATO member.  Will it be included in the EU? Will it embrace the Euro as the national currency? Will the EU co-invest in the reconstruction of the country or will it stand alone? Again, the last word has not yet been spoken.

Then we can plot these two axes against each other as follows:

Overview of these four extreme scenarios, although the real future may lie somewhere in between.

1: New future

If the EU seizes the opportunity to help rebuild Ukraine, it will have to make huge investments. The first two things that will be needed are to rebuild electricity supplies and supply chain resources from the EU and the rest of the world to the shattered corners of Ukraine. Electricity is important because then the field hospitals, later the real hospitals will be able to work again, the companies can be restarted. Machines can then work. Computers are functioning again. Pumps are running and water supplies are functioning again.  For supply chain: roadworks will not be missing, and only then will it be possible to rebuild intensively. If this is tackled big enough, it has some advantages. Like Germany after the Second World War, Ukraine can rise from the ashes and become  a new economic engine of the EU in the long term. Hopefully, through an effective and efficient supply chain, a famine like the one in the Netherlands after WWII can be prevented. This, of course, will not erase the suffering, and a hatred of Russia may be permanent for the first few centuries.  The accumulated war debts are partly repaid and partly cancelled.

As far as Russia is concerned, things are not going so well. Russia was not destroyed. It keeps its existing industry and lags behind financially due to the large debt burden it is now making in order to win the war. Future generations, who will have to pay this debt to the creditors, will not have it easy. It is possible that some of the future generations will flee the yoke of debt through emigration. And that can be done most easily where they integrate most easily at that moment. In fact, they, the future Russian children, are not to blame. They were also not taken into account in this war.

2: Rehabilitation scenario

Russia regains the territories up to the Dnipro and then  stops his attack. NATO does not want a war with Russia and the EU only recognizes the remaining area as a possible member of the EU. Heavy cyberattacks happen from both sides. Zelensky is pushed to face the facts: without electricity, without equipment from the rest of the world, the war can only stop. The EU and the USA are helping and rebuilding the remaining area and, for the most part, stop  working with Russia. Putin is going to get into the history books, but not in the way he wanted. Forces may emerge  to overthrow Putin. Here, too, Russia has financial debts to repay. Ukraine is obliged to make peace in order to be able to  export  its grain safely overseas.

3: Winter is coming

Ukraine freezes. Reconstruction is very slow. The EU disapproves of membership. There are a lot of people who are dying from the cold and hunger. The refugees, especially widows with children, en masse, do not want to return to their homeland. Many try to go into hiding. The USA cancels part of the war debts in exchange for military bases in eastern Ukraine. The EU is groaning financially  under the migrant pressure that has been going on for a long time. Racism against refugees is on the rise in Europe. Poland, in particular, thinks it is somewhat OK for the refugees to stay as long as they integrate and work. The reconstruction of Ukraine is progressing (too) slowly or stagnating due to the absence of an important part of the workforce: the female refugees. Ukraine becomes a failed state. Crime is rampant. It is uncertain whether Russia will not start a second war against weakened Ukraine.

4: Human disaster

Russia occupies a large part of the country up to the Dnipro. There is a migration of people, as far as is still necessary or possible: the ethnic Ukrainians are expelled, their place is taken by the ethnic Russians returning from Russia. Russia is committed to rebuilding the conquered area. The refugees want to give their children opportunities in their refuges, but the EU is putting them across the border. Due to a shortage of resources and medical supplies, diseases break out in Ukraine and people die. Because of extreme cold weather conditions and malnutrition cannibalism occurs here and there. Russia sabotages the reconstruction of western Ukraine. Ukraine cannot pay its war debts.  The USA negotiates with the government to be able to  build military bases in exchange for cancellation of (part of) the war debts. The EU offers minimal humanitarian aid, only the most necessary. Crime is growing. The country is collapsing. Also in this scenario, Ukraine becomes a ‘failed state’. The cold war with Russia of the past continues to flare up with violence. China offers aid to Ukraine in exchange for grain trade.

Conclusion

Whatever the outcome of the war, I think there is only the option that after the war Ukraine is not alone. It will be taken into NATO, maybe not, but it will be in the EU. It is her only chance of any recovery that is somewhat worthy of that name. It will not be easy for Russia after the war either.  The young Russians, the future generations, are going to  be a victim of this,  regardless of who wins militarily. Much of the world will view them differently than before.

For both the EU and the USA, there is a major effort to be made after the war. This need  is perhaps even greater than the investments they made during the war. The wounds that need to be taken care of, physically and psychologically, will never heal. Financially and economically, Ukraine can revive, if the investments after the war also  entail an investment in new industry as in Germany after WWII. At the expense of many children’s lives, sons and daughters of many mothers and fathers. On both sides.