Existential risk – should we take notice?

Existential risk – should we take notice?

The current pandemic has raised the question about existential risk and our response to it. What exactly is an existential threat anyway? The literal answer is anything that impacts our existence, practically speaking this is any massive environmental or technical event that ‘threatens global economic welfare, the resilience of societies, the common good and financial markets’ – at least according to a recent article in Responsible Investor magazine examining ESG fund performance.

On a personal level much depends on where you live. If your home is on the slopes of a volcano, in an earthquake zone or in coastal lowland prone to tsunami impact, then you treat existential threats differently to those is metropolitan London, Paris or New York. On a commercial level an existential threat is one that can render your business model obsolete overnight. For any organisation to survive, its rate of learning (adaptation) must be equal to or greater than the rate of change in its environment. If the environment changes and you don’t then you could cease to exist.

The pandemic has forced certain sectors to consider existential threats. Many restaurants and cafes require a 70% occupancy level to break-even: if social distancing laws mean that they can only operate at 30% occupancy then they cease to be viable. Some can adapt by switching to take-away or home delivery in the short term, but this is not a long-term solution – unless the owner always planned to move on-line and jettison the overhead cost of retail space and staff. Most of those in hospitality do it for the pleasure of providing good food and good service, happy to leave Deliveroo or Just Eat to their fulfilment offering.

This leads to the question: why do people visit restaurants and cafes? They provide a social benefit that social distancing now deems unacceptable. They don’t exist simply to provide food and drink; customers value the ambience and social interaction experience. This is an integral part of the customer value proposition and why take-away food, however tasty in itself can’t compete with the dining-out experience. Don’t get me started on pubs and their contribution to society as an escape-valve from reality – it really isn’t just about the beer.

Should the hospitality industry treat social distancing restrictions as existential risk, given they may not be temporary? Let’s look at two industries where existential threats in the form of legal constraints have forced adaptation of the business model: tobacco and gambling.  The tobacco industry is heavily regulated in developed ‘western’ markets with taxes, age limits and health warnings so it has focused on markets in the developing world with less stringent regulation. The product is the same but the market is different. Conversely the gambling industry response to existential threat was the opposite; it changed the product but kept the market. It moved offshore and went on-line, but the same people gamble only they circumvent the local legal restrictions.

Higher education is another sector where the substitute product is not the same as ‘the one on the label’ or what the customer thought they’d bought. Students who choose to go to a UK university do so not only to acquire a degree but to experience a unique lifestyle and freedoms away from familiar surroundings of childhood. Exposed to new people ideas and challenges they develop valuable personal skills for their future.  On-line lectures cannot replace the lecture theatre or tutorial meeting; the experience will be completely devalued. Those who wanted an on-line qualification will already have selected an Open University course, so why are universities short-changing so many students? The answer lies in an inflexible business model predicated on regular fee income.

Transport is another sector where existential risk makes an impact. Bus and train providers have been told to ensure social distancing is practised so that they must run with 10% occupancy. How does this work in the rush hour? Airlines have yet to enforce social distancing, especially budget airlines where the business model works on 95% occupancy. Existential risk has enormous impact on operational logistics for any business sector where the volume of customers cannot be managed without significant alteration to the business model, think budget tourism and package holidays.

This pandemic has shown us what is important and forced us to examine what we take for granted. In AD79 Vesuvius erupted and engulfed Pompeii destroying many valuable possessions of wealthy Roman citizens. It prompted Cicero to reflect on what we need for contentment: ‘If you have a garden and a library you have everything you need’. Lockdown is a reminder of what we really need to exist and existential risk should be viewed within this context.

Written by Garry Honey, SAMI Associate and founder of Chiron Risk 

The views expressed are those of the author(s) and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

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