FSG Blog
September 25, 2023

Strategic Surprise: When systems stop working

Kevin McDermott
FSG Principal

At a conference in Singapore this past summer Ray Dalio, founder of one of the largest hedge funds in the world, remarked that “It’s like going through a time warp. We’re going to be in a different world. And the disruptors will be disrupted.”

What was Dalio talking about? Artificial intelligence, inevitably. But he could just as well have been talking about steam power, electricity, universal women’s suffrage or the world after Hiroshima. All of these were moments that clearly marked a before-time and after-time, when everything everywhere becomes different, when systems that used to work were challenged by strategic surprise.

For organizations trying to plan their futures such moments are times when, to quote Karl Marx, “All that is solid melts into air.”

Strategic surprise is more than just a shock to the system, like 9/11 or Covid. It is a phenomenon in which, after the shock wears off, a system no longer works because the operating environment for which the system was built has changed profoundly.

Strategic surprise is not contingency

In 2021 the container ship Ever Given lost a battle with strong winds, went sideways and effectively plugged the Suez Canal for nearly a week. That was an accident, a contingency. Accidents happen all the time. Except at the margins they don’t change the world.

Earlier this summer drought compelled the Panama Canal Authority to restrict the numbers of ship passing through it. The drought, the Authority declared, had “no historical precedent.” Meanwhile in Germany low water levels on the Rhine are now a regular summer occurrence, exposing the river bottom in many places, driving up shipping times and shipping costs, and stimulating demand for more reliable alternatives.

Unlike the Ever Given story, logjams on the Rhine and at the Canal might be classed as strategic surprise. Both instances are ultimately the consequence of unprecedented mood swings in weather patterns owed to climate change and recurring phenomena like El Nino. Shippers are confronting a transformation in a traditional operating environment they may have thought would be a problem for the next generation. On the contrary, it’s here now.

Climate change is a well-known phenomenon. Which raises a question: Can an event be a strategic surprise if we know it’s coming?

Threat intelligence

In the late 1940s television took off as a consumer phenomenon. It was years before Hollywood studios understood how thoroughly it had changed not just their business but the very culture in which they operated. Climate change, AI, political realignment—the same will be true of these phenomena too.

It is common for FSG scenario planners to hear clients say that a scenario world is too outlandish, too much of a stretch even for big imaginations. They may acknowledge a force for change in the world—the Internet, changing gender roles, epidemic loneliness—but may still think “this has nothing to do with me.” Until it does.

How to avoid strategic surprise

To put it mildly, we live in an age of uncertainties. Surprises await everywhere. This does not mean organizations are condemned to be reactive (which is often what is really meant by “agile”).

Organizations can learn to listen for signals of change. They can develop a habit of formally challenging orthodoxy and avoiding the seductive trap of continuity bias.

One way of doing both is with a regularly scheduled review of the organization’s strategic plan. (You have one, right?) Just the exercise of discussing how well strategy matches to evolving reality can promote freshness in operational thinking, an expansiveness in the way an organization imagines its mission.

Scenario planning is the most potent promoter of freshness and expansiveness and of what FSG principal Patrick Marren in his new book calls “rigorous imagination”. Its power lies in the way it lifts us out of out of the world we think we know and sets us down in a place where we can drop our defense of the status quo. It frees us to contend with novel forces for change and prepare our systems ready for transformation.

In 2020, for example, BP used scenarios as part of its annual analysis of the global energy system.

Certainty the world’s transition from fossil fuels is well-known to BP. The multiple meanings of this transition for BP are not. The scenarios the company employed were built on different assumptions about broad changes in the world beyond just energy including technologies, social values, government policies and so on. The goal was to get out in front of strategic surprise. An early reward is that BP has begun reimagining its identity.

“We are setting out a new strategy,”BP said of its “net zero” objectives for 2030, “that will see us pivot from being an international oil company focused on producing resources to an integrated energy company focused on delivering solutions for customers.” BP is keeping its thinking fresh by continuously monitoring its original scenarios, measuring them against real-world changes in the operating environment.

Here is your homework

It is 2036. Three US presidential elections have happened. Without making predictions about who won those elections, how have the forces gathering in 2023 changed your world? How has your changed world affected your organization?

Part two of your homework is this: Which forces for change were not on your radar back in 2023? And how are they surprising you now?

Work among yourselves.

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1 thought on “Strategic Surprise: When systems stop working”

  1. We tend to think of strategic surprise in exclusively negative terms. But good things can surprise us as well – e.g., funding windfalls (like the Coast Guard after 9/11), etc. Point is, it’s important to anticipate and prepare for upside surprises,too.


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