There are two common strategies for investment that are also extremely applicable for management (well management is a type of investment 🙂 ). You can focus on short term profits while ignoring the next unknown macro event, that can take away all of the small gains that you collected over the years. The alternative is to accept small losses and plan for the big unplanned macro event, that will generate huge revenues (revenues that will exceed bigtime the losses you encouraged). While the majority of the people driven by risk-averse culture take the first strategy, the bold and successful players in the market use the second approach.

The same strategies can be found in management, and not surprisingly with the same results. Most of the management group that I’m familiar with will take the risk-averse, efficiency, focus on continuous improvement approach. In their linear thought process, unplanned events are something that might happen every ten thousand years. So, they manage to take their business forward until the ten thousand years event happen (note that in reality, they tend to occur every 5-10 years). When the event occurred, they are losing everything (for example, banks during South America crisis, financial institutions, aviation companies, the list is long).

The other management strategy is different, and it’s based on the assumption that one in ten thousand tears event will happen in the next five years. This management strategy is not focused on efficiency; it is taking continuous risks. In the heart of this strategy there is a concept that if a significant negative macro event will happen, the company need to invest time and efforts to prepare people to deal and work when the macro event will take place. As in financial investment, when this strategy is in place, the company will see less short term revenues. On the other side, when the macro event hits the industry, they will be the one of the few that will pick all the fruits from the trees while others will stand in the line for the chapter eleven office.

Even a hybrid approach of those two strategies is better than focus on the first one. But, regretfully people feel much more confident with the first strategy. Well, this is great as it enables the few that are taking the second strategy to wait and earn X10 more from all the investment they put in place.


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