A Business Metaphor in the Context of National Security

Applying a business metaphor to intelligence processes in the national security context is not only valid, but I would like to argue, also desirable. In reading Allen’s take on the business analogy, it seems that he is rather averse to this proposition. His first contra argument is that, unlike business, the government cannot be responsive to market forces. I disagree. What the market is to business, international relations is to government. Are we to believe that government should not pay attention to and respond accordingly to developments in the international arena?

Secondly, our environment is becoming more rather than less networked through globalization. Where once particular domains were immune to changes outside their immediate environment, and cause-effect analysis had a more linear dimension, the complexity and interconnectedness of elements cutting across disciplines and once clearly defined domains, calls for non-linear cause-effect analysis. If government is not responsive to market forces (which I don’t believe is the case in reality), then it most certainly should be.

Further, Allen goes on to say that since government functions are assigned by statute, should a certain direction/policy/requirement become “unprofitable”, unlike business, it cannot choose to simply abandon it. This may be true due to the bureaucracy inherent in government institutions. However, it is precisely this inflexibility and slow reaction to change that the government should address through reform, and use examples from business as guidance.

Finally, functions are assigned to government, Allen argues, because they have a higher, public welfare purpose that is not economic. Get off your high horses, Mr Allen! Why should economic purposes be necessarily painted in such a negative light?! Economic growth and prosperity through healthy competitive business, not only contributes to the “higher, public welfare”, but also helps bring stability and opportunities for many conflict resolutions by means of soft power rather than the not so noble practices of coercion and military intervention.

There is one area that Allen briefly discusses, where the business metaphor is not likely to be applicable, and that is information/intelligence sharing among the agencies. But even here we need to make a distinction between business vs. competitive intelligence and homeland security agency cooperation vs. agency cooperation in an international context.

By definition, business intelligence is an inward-looking process. It pertains to knowledge derived from analyzing an organization’s information and internal processes to help make better business decisions. Essentially, it falls under the knowledge management domain. Progress has been made here to facilitate internal information/knowledge/intelligence sharing both in the private and public sectors. Various knowledge management practices and technological tools have proliferated in the past decade to facilitate this process.

This is less the case with competitive intelligence and international inter-agency collaboration for obvious reasons. Even when an outsider is perceived to have friendly intentions, he is still an outsider; tables can turn quickly; and trust is always on a tighter leash. For clarification, I refer to competitive intelligence as gathering and analyzing information about your competitor’s activities (and general business trends) to further your own company’s goals.

However, despite intrinsic differences, both business and national security intelligence share the same objectives:

• Avoid surprises
• Identify threats and opportunities
• Gain a competitive advantage by decreasing reaction time
• Improve long and short term planning

With the above in mind, I think the utility of the business metaphor to the national security context is indispensable. What is more, both domains use more or less identical techniques in the way they go about their business. This brings me to the second part of the question: the role of early warning in business and national security.

In business, early warning intelligence provides executives and senior management with timely, valuable information about market and competitors that enables them to make strategic and tactical decisions more quickly. (definition from Society of Competitive Intelligence Professionals)

In the national security context, early warning intelligence is supposed to provide anticipatory assessment of future problems to avoid strategic surprise. As in the business field, the recipients of this information are senior leaders and decision-makers, who are then expected to provide a course of action to address the threat.

It could be argued that one fundamental weakness of early warning systems is that they are better able to provide strategic rather than tactical intelligence. For example, strategic early warning was ample in the case of Pearl Harbor. The U.S. expected a Japanese attack well in advance, but early warning was unable to predict that this attack will happen on U.S. territory. Indicators pointed toward Southeast Asia. In the case of early warning prior to 11 September 2001, again, strategic assessments had correctly predicted bin Laden’s intentions to carry out a terrorist attack against the U.S., but were unable to pinpoint time and location.
In the business context, despite various whistle-blowers’ early warning indications, five weeks prior to Enron declaring the largest bankruptcy in U.S. history, the company’s debt was still rated as investment grade by leading rating agencies. In the case of Grove’s company, Intel, early warning was there, but no one considered it significant enough to allocate time and attention to it before it was too late. After running a probability test to analyze potential effects of the “minor” design error on the chip that was to cost them USD 475 million and eventually result in the complete business re-engineering of the company, Intel’s management underestimated the non-linear consequences of this small probability – high impact event. The failure, as Grove correctly observed, was not technological; it was social. And the forces that prompted the reverberating reaction across the company and the computer industry as whole, were likewise prompted by social dynamics rather than technical design.

This brings me to the next problem, which I think is inherent in early warning, namely, the relationship between the warning analyst and his senior decision-maker in the national security context and the whistle-blower and his senior manager in business.

According to John Kriendler, who writes on NATO Intelligence Warning Systems (NIWS), “no matter how well-structured an early warning system, its success depends, above all, on the judgment and vision of political authorities. Ultimately, the political will to act individually and collectively, and, if necessary, to intervene is more important than any early warning tool.”

From the above, it can be deduced that for early warning to be effective, two elements must be in positive complementation to each other: the development of critical indicators, where analysis is based on a qualitative not quantitative approach and ensuring that “the nature and level of warning that is being provided is understood; feedback is essential.” (ibid.)

Why is leadership so important to the early warning process? As Grove says: “Most analyses of competitive well-being of business are static ones. They describe the relevant forces at any instant in time and help explain how they add up to favorable or unfavorable business positions. But they are of little help when a major change is taking place in the balance of these forces.” (p.27)

Just like peace time and war time require a different type of leadership and a different set of skills to manage either, so in business, a leader who has grown accustomed to a gradual and systematic performance, leading to few unpredictable results, will most likely be unable to react with the agility a surprise transition requires. It is at such times that “intuition” has higher value than structured scientific methodology: “Even those who believe in a scientific approach to management will have to rely on instinct and personal judgment.” (Grove, p.35)
Early warning intelligence is not suited to a 9-5 government routine, bureaucratic processes and quantitative reports. Rather, it resembles the R&D department of a company. Of all other forms of intelligence, it should be the one granted the most freedom in the way it fulfills its function, and the recruitment strategy should aim at finding individuals with highly developed visionary and critical thinking skills.

Advertisements

INTSUM: Privatization of the Kyrgyz Electricity Industry Likely to Hit Hardest the Poor

kyrg_water.jpg IWPR (Bishkek) 25 January 2008

Plans to privatize Kyrgyzstan’s electricity industry are under way, after President Bakiyev’s statement that the only way to bring more money into the sector is through privatization. He and his officials believe that Kyrgyzstan can become self-sufficient in energy as privatization would help with renovating derelict Soviet equipment and with the building of new plants. However, while those who support privatization as the only way of salvaging a loss-making industry, opponents say the privatization process has been anything but fair and transparent, expressing a low degree of trust in the way the government handles potential bids.

Analysis:

It is very likely that privatization of the electricity industry will continue rapidly, with several major investment deals likely to close by summer 2008. While Russia, and Gazprom in particular, are highly likely to be favored as investment partners, it is also likely that Kyrgyz authorities will be open to other bidders, including Kazakhstan, Uzbekistan, China, some Middle East countries, and possibly even the US.

As private investors move in, the prices for electricity and heating are very likely to increase by about 30%, which will have the most severe effects on the Kyrgyz poor, and especially on the retired segment of the population.

Source reliability: 8

Analytic Confidence: 8

WEF Global Risks 2008 Report Adopts Vocabulary from Complexity and Systemics

wef.jpg WEF is convening its annual session in Davos next week (24-26Jan), and have just put online their 2008 risk assessment report, which covers the topics that will be discussed at the various panels.

The report is very interesting, not least because of the 2nd appendix, which features a table of predicted risks and their likelihood and severity in numerical terms – a topic of central concern to my last two courses in intelligence analysis. Further, what I personally find rather fascinating is the emergence (sic) of a homogenized vocabulary to talk about what we label these days “new risks”. This vocabulary, stems entirely from subjects like complexity and network sciences, as well as some of the more metaphysical parts of physics and mathematics. Now, I’m no financial risk specialist, nor do I have any knowledge other than popular explanations of Physics and Math theories, but when I read a report, whose audience is primary in the finance sector, make repeated use of words  such as emergence, uncertainty, aggregation, resilience, systemic finacial risk, interconnectedness, diffusion, complexity, “tail events”, etc., etc., a bell goes off in my ears. Is this current mania toward homogenuity, assimilation, the universal, and big picture telescopization not blinding us to what lies immediately before our eyes? I find something grotesque and almost cannibalistic in this process.

Nonetheless, the report is well worth reading, if not for its linguistic “anomalities” than for its forecasting methodology (complete with a  fashionable SNA -social network analysis). This is not to say that I dislike WEF’s assessments. On the contrary, I find many of the observations and the parallels drawn between finacial risk evaluation and geopolitical risk assessment, as well as the discussions on food security, supply chains, and the role of energy, highly informative. In fact, I buy a large part of the arguments. I’m slightly surprised but pleased to read such humble conclusions (contrary to conventional wisdom, which looks at two aspects of risk – likelihood and severity and traditional prevention and mitigation measures of countering them)  as acknowledgements that in the face of “new risks”, which are entirely unforseeable, such strategies fail.

It is refreshing to read a report produced mainly by financial analysts (notoriously conservative) that: “It may not make sense to attempt to eliminate risks which ultimately represent a source of opportunity as well as hazard. Rendering the global financial system as flexible and resilient (my emphasis) as possible by improving early indicators, enforcing more stress testing, enhancing understanding of tail risk and requiring better contigency planning may be more effective.

Ultimately, strategies to deal with systemic financial risk must reflect the fundamental shift in the global financial system to a market-driven model. There is considerable scope for increased public and private sector collaboration on stress testing, liquidity management, risk assessment and prevention.”

I welcome such initiatives from the private sector as I truly share their opinion in the value such collaborations can bring. The question is, has the public sector woken up to the idea that this might be its most viable strategy in fullfilling what its ultimate purpose is supposed to be: duty to its electorate?

I’ll be covering more news from the 3 day WEF session in Davos on my blog next week.


 

INTSUM: Afghanistan – a New Migration Destination for Kyrgyz Workers

While the majority of Kyrgyz economic migrants still seek better opportunities in the booming economies of northern neighbors Russia and Kazakhstan, some are turning instead to conflict-ridden Afghanistan, where higher security risks are compensated with higher wages. A major source of employment for south-bound Kyrgyz migrants are US private contractors in Afghanistan. The US State Department has stated that it employs some 29, 000 private contractors there, many of whom are neither US nor Afghan citizens, but third country nationals (TCNs), who despite harsh and often dangerous conditions, are lured by the much higher wages.

Analysis:

Given the small number of Afghanistan-bound Kyrgyz migrants, it is unlikely that this trend will have any severe short-term impacts on Kyrgyz economy. In fact, those returning to their homeland with accumulated capital, are likely to have a positive impact in the area of SME development in Kyrgyzstan. However, given the general trend in migration causality from politico-ideological to economic, such a trend is likely to have more long-term consequences, which would be difficult to predict, and may even fall under a Black Swan category. One likely psychological outcome may well be a diminished sense of risk aversion in the segment of population that is facing exceedingly gloomy employment prospects at home.

Source Reliability: 8

Analytic Confidence: 8 

Organizational challenges of global trends

According to a November 2007 McKinsey global survey, in which 1317 senior executives from 93 countries participated, organizational change is seen as a crucial factor in building or maintaining competitive advantage.

The 3 global trends that appear to matter the most are: (i) the intensifying battle for talented people, (ii) shifting centers of economic activity and (iii) increasing technological connectivity.

Top business trends likely to have the most effect on business over the next 5 years

1. Competition for talent will intensify, become more global – 47%

2. Centers of economic activity will shift globally, regionally – 34%

3. Technological Connectivity will increase – 34%

4. Ubiquitous access to information will change economics of knowledge – 28%

5. Demand for natural resources will grow, as will strain on environment – 25%

6. Population in developed economies will age – 22%

7. Consumer landscape will change, expand significantly – 20%

8. Role, behaviour of business will come under increasing scrutiny – 19%

9. Organizations will become larger, more complex – 18%

10. New global industry structures will emerge (e.g. private equity, networked

Top organizational challenges by given business trend

1. Trend: Ubiquitous access to information will change economics of knowledge, n=363

Challenge: Ensuring information, knowledge, wisdom are shared across business as quickly and as effectively as possible, 51%

2. Trend: Public sector activities will baloon, n=56

Challenge: Finding right cost base, pricing model for products and services, 44%

3. Trend: Demand for natural resources will grow, as will strain on environment, n=334

Challenge: Managing operations in a way that is environmentally sound, 41%

4. Trend: New global industry structures will emerge, n=229

Challenge: Creating, capturing value from networked businesses, 40%

5. Trend: Consumer landscape will change, expand significantly, n= 274

Challenge: Managing complexity of tailoring products or services to different local conditions, preferences, without diluting the brand, 36%

6. Trend: Population in developed economies will age, n= 271

Challenge: Recruiting next generation of workers, 30%

7. Trend: Technological connectivity will increase, n=443

Challenge: Developing ability to change organization, operating model quickly enough to keep pace with technological change, 28%

8. Trend: Role, behaviour of business will come under increasing scrutiny, n=234

Challenge: Improving enterprise-wide risk-management processes, 27%

9. Trend: Growing competition for talent, both technical and managerial, n=644

Challenge: Dealing with shortages in specific skills, 26%

10. Trend: Organizations will become larger, more complex, n=235

Challenge: Increasing speed of decision making, response to external changes, 25%

11. Trend: Centers of economic activity will shift globally, regionally, n=461

Challenge: Managing an organization with operations at different stages of growth, market development, 20%