Framing Disruptions

Simple approaches can focus the mind. When thinking through the means and mechanisms by which disruptions could affect my business, my community, or the economy, I often ask two simple questions rooted in economic fundamentals[1]:

  • Big or small? In other words, how impactful, whether positive or negative, would we expect this disruption or change to be on local infrastructure, needed supplies, or aggregate demand? 
  • Long or short? What is the likely duration, whether positive or negative, of this disruption or change on supplies or demand in the community, market, or industry?

As an example from my work in the forest industry, consider the impacts of natural disasters on timber markets. In August 2005, Hurricane Katrina, a Category 5 event, struck the Gulf States, brutally affecting homes, forests, and infrastructure. As a disruption, how would we provide context to its impact on timberland owners? Consider these two questions to organize our thinking:

  • Big or small? Big event locally; devastating to some forests and damaging to many. 
  • Long or short? Short-term increase in supplies; negative impact on timberland value.

Using Frameworks to Make Decisions

Simple frameworks add value to the extent that they prove useful. This analytic exercise supports decision analysis. Using experience, knowledge, and available data, it screens and ranks the relative importance of potential disruptions on lives, businesses, and markets. We can then probe assumptions and, while there may be no “right” answer, develop operable approaches to establish priorities.

With family or colleagues or neighbors, the resulting discussions can clarify how much control we have. Some disruptions, like a zombie apocalypse, get thrust upon us from the outside, while others, like new internet providers or car technologies, offer choices. And a big impact or opportunity for an individual, family, or single forest owner can be small for the overall market and community. 

With respect to applying this approach with executives and other decision-makers, I think in terms of “tactics” (operations) versus “strategies” (capital allocation). Disruptions that get handled on the ground via operations tend to qualify as shorter or smaller in this framework, while anything that requires a board meeting or act of Congress reflects longer-term disruptions affecting investments and strategic advantage. Given this approach, how do we develop strategies and assess exposures across multiple disruptions for these situations locally?

Time as a strategic idea remains malleable. Discussions about potential disruptions reinforce the arbitrary nature of the “short” and “long” term. The space and time required for impacts to realize themselves can extend beyond today, tomorrow, or next year. 

Conclusion

Regardless, we succeed by prioritizing in the name of preparation. My working assumption is that a person or firm that is ready for everything is ready for nothing. We avoid personal and organizational paralysis through taking positions on what matters, on where we have control, on eliminating the gnats and knots to go after the disruptions that threaten survival or offer outsized opportunities. 

In March 2020, I posted “Thinking Through Risk and Uncertainty: Contemplating the Coronavirus” and am returning to these themes as ideas and questions related to risk, disruption, and stability have become more frequent in my conversations. For those interested in a further discussion of strategic thinking (and how the coronavirus affects the forest industry), click here to read a five-page white paper.


[1] These questions are a variation on the frequency-severity framework used for insurance and risk management applications. In forestry, I have found it useful to think through duration – how long something lasts – rather than, or in addition to, the gap in time between occurrences. 

1 Comment

  1. Lawrence B. Schiamberg

    February 20, 2024 at 4:08 pm

    Excellent discussion of understanding the nature of risks and the effective management of those risks !