Increased importance of risk management

Good leaders will be those who can calculate and cope with risk. As I argued earlier, the internationalization of the world economy goes through cycles and is likely to keep on doing so. But unless there is a major geopolitical catastrophe, I dare to predict that we shall continue to see in the long term a growing internationalization of trade, a reduction of trade barriers and a decrease in the importance of national borders. This reduces the protection of the individual firm by its national authorities and increases the interdependence of the players in the world market. It also means that shock waves will spread faster throughout the world, and that the amplitude of shocks may increase.

The speed with which the demise of Lehman Brothers influenced the rest of the financial world was a simple illustration of this. It means higher risks.

In such a world, the quality of both management and leadership becomes more important for the success of an organization than does the protection offered by staying behind trade barriers and the advantages provided by artificial information asymmetries provided by helpful governments. Managers will become more exposed and high quality leaders will be those who can estimate risk and uncertainty, and are better at coping with it through experimentation and quick learning (Loch et al., 2006). Such experimentation and learning will require people who are more sensitive to weak signals in their environment, and have the ability to avoid small disruptions becoming amplified once they start rolling though the networks.

 
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