On risk and how to mitigate it

On 1-March-2020, I wrote this article. In it I argued that the risk benefit/reward equations have been thrown out of kilter by the pandemic. Or maybe, rather than thrown out of kilter, maybe they are reverting to a more natural state, where risks that have been previously discounted, are now showing their true (or more nearly true) values.

A former SGI colleague, and now HBS professor, Willy Shih, wrote a great article on how management might wish to adapt to this reconfiguration of risk strength/value. It is a good and short read, offering concrete guidance on strategies to mitigate risk.

For risk mitigation, as well as most things in life, there are no silver bullets. Geopolitical risk, pandemic risk, trade war risk, currency risk are all factors in determining where one should perform work at scale. Is the money one saves on wages worth the risk associated with being unable to ship product due to other of these risks? With months of data across many industries now on this, it’s become clear that the answer is likely an unequivocal “no”.

Moreover, at a national level, does it make sense to (continue to) hollow out our industrial base in pursuit of lower unit cost (but unpredictably high risk cost) for critical material … pharmaceuticals, infrastructure components, base manufacturing? Again, this is an unequivocal no.

A supply chain is, intrinsically, a weak link in a chain. If your country loses all its toilette paper due to the inability to make it, and inability to import from (potentially hostile) supplier companies … imagine how bad it is if you have to import something important. Such as pharmaceutical chemicals from them. Or things to them.

This isn’t calling out a boogie man. This is pointing to the very real and quantifiable risks of pursuing a globalist agenda.