We live in a non-ergodic world—a world in continuous transformation. When change is constant and dynamic, it manifests in different guises. Threats become difficult to perceive and evaluate. For businesses, it is a matter of survival to discern whether they deal with minor fluctuations or major inflection points. Although events are non-repeatable under continuous change, there may be regularities that lead to their development. Collapse, for example, is characterised by the progression of problems caused by human error. Looking at past declines, therefore, can help us perceive signs of crisis and develop strategies for dealing with major inflection points.
Most inflection points result from changes in the business’ operating environment, e.g., shifting consumer preferences, disruptive competitors, or changing regulations. Businesses tend to focus on these more familiar and direct issues but overlook threats outside their industry or market. This is especially true of systemic risks such as the climate crisis. Climate change does not just affect firms individually; it affects economies systemically. But despite calls for urgent action, for many business leaders, the climate crisis appears distant in time and relevance.
This is unsurprising given the optimistic economic forecasts for rising global average temperatures. At a life-threatening 3°C of global overheat, scholars expect between 2% and 22% output loss. The problem is that most economic loss projections only cover a limited number of risks; for example, they don't capture risks from sea-level rise or severe weather. They also assume socioeconomic factors such as population, migration, and conflict remain constant even at high levels of warming. Climate tipping points, such as thawing permafrost or ocean circulation collapse, are rarely included. Nor are the physical effects of climate change, such as crop destruction and water contamination. Some even assume the economy will grow faster in a hothouse scenario due to things like the opening of new Arctic shipping routes. When accounting for all these effects, research by the British Institute of Actuaries found that the economy could shrink by half between 2070 and 2090.
The problem is not just the flawed economic models, but the worldview that informs them. According to economist and environmentalist Paul Hawken, our overreliance on economics blinds us to the complexity of the challenge. Citing systems thinker Dennis Meadows, he writes:
“Economists assume the future will be much like the past. Since markets and technology have avoided catastrophe in the past, we can count on them to do the same in the future. Ecologists believe they see unique problems in the future, which will demand solutions outside the capacity of our present market mechanisms. Economists tend to see evolution as a series of continuous reversals: problems leading to solutions, new problems leading to new solutions. Ecologists are worried about irreversibility. When species are lost, no change in price or technology will bring them back.”
It's a sign of systemic myopia when preventable problems are viewed as something to solve ex-post and not managed ex-ante. The overly optimistic faith in technology to solve problems after they occur comes at the expense of more effective upstream solutions. Although climate tech promises innovative solutions to global warming, for example, capturing and storing atmospheric carbon, it won't save us unless we radically reduce carbon emissions in the first place. Despite being an indispensable tool, it's not a magic bullet. Thinking so only promotes the idea that we can carry on as usual. It also ignores the biological reality that ecosystems take centuries, if not millennia, to evolve. Once gone, many are lost forever.
But even before the earth becomes uninhabitable, the global economy could cease to function. Because climate risks are not factored into asset values (everything from real estate to pension funds to government bonds), we might be heading for a major financial crash, unlike anything we’ve experienced in the past. A disaster big enough to pose a civilisational risk. Corporations are critical agents in this context. They are not only handlers of risk, impacted by a climate-induced economic decline, but also producers of risk, largely responsible for its cause. As the dominant institutions on the planet, they must lead the charge in economic transformation or face inevitable decline.
Learning from past failure
In his best-selling book “Collapse”, Jared Diamond studied why some past civilisations vanished and others survived. He found that societal decline was gradual and caused by collective myopia, failure of judgement, and disastrous decision-making. Researchers Weitzel and Jonsson, studying organisational collapse, reached similar conclusions regarding human error leading to decline. Like societal collapse, organisational decline is defined as something that "happens by degree" and that occurs because organisations fail to anticipate, recognise, and respond to signs of crisis. In both studies, collapse is characterised by problems progressing through stages. The effort needed to confront these problems grows with each stage, while the chances of success decline.
This also applies to the progression of the climate crisis. Scientists say that if we had acted 15 years ago, when climate change wasn’t yet an emergency, we would have only had to cut our emissions by 3%. Now that we have reached the point of crisis, the cuts must be much steeper—up to 9% per year. As a science communication expert put it, what could have been a bunny slope is now a double black diamond.
Facing threats to their long-term survival, groups are susceptible to cognitive biases and poor decision-making. The question is: What can businesses learn from collapsed societies and organisations? What signals do they need to pay attention to? What can they learn about the cognitive and behavioural challenges they must overcome?
Drawing on both lessons from societal and organisational decline, we can identify four progressive stages– each characterised by different type of failure. There are many reasons why societies and organisations committed these mistakes, and the following is a summary of the most common or disastrous ones.
Stage 1: Failure of anticipation
Groups can fail to anticipate a problem in two ways. First, they fail to imagine how their actions can cause a problem that threatens their long-term survival. Second, they perceive signs of decline but fail to make sense of them. Failure of anticipation is most often caused by lack of prior experience, insensitivity to change, and lack of frames.
A lack of prior experience refers to the uncertainty inherent in novelty. Conditions that cannot be anticipated based on past experience are called unknown unknowns. Past societies dealt with unknown unknowns when they introduced non-native species which became invasive or when they altered their environment through unsustainable deforestation or hunting. Because they were focused on meeting their present needs, they did not anticipate that harming the ecosystem on which they depended would jeopardise their long-term survival. They were unaware of the risk of irreversible damage. Even today, we struggle with anticipating unintended consequences. Often, innovations designed to solve urgent problems create new ones that we weren’t prepared for. Some of the most successful inventions of the 20th century were simultaneously the most harmful ones. For example, ethyl (leaded gasoline) and CFCs (refrigerant and aerosol propellant) had disastrous secondary effects on the climate. Their inventor Thomas Midgley jr. was hardly unaware of the adverse effects of ethyl, but self-interest prevented him from pursuing a less hazardous alternative. Ethyl was a preventable mistake and, as such, a known unknown. On the other hand, the link between CFCs and the atmospheric chain reactions took at least 40 years to establish. Even with sophisticated foresight tools at our disposal, it’s impossible to foresee all potential consequences when dealing with unknown unknowns.
Another common reason for failure of anticipation is the inability to perceive change. There are some blind spots in every organisation, but what distinguishes effective organisations from ineffective ones is their sensitivity to signals of change. In the first stage of decline, many negative changes are qualitative. Leaders must be attentive to anecdotal evidence since negative pressures aren't yet evident in financial reports. Slow change is particularly difficult to detect. In his analysis of the fall of Blockbuster, Clayton Christensen observed that disruptors are often overlooked because disruption happens over many years. It’s even more challenging to perceive threats that develop over decades and are obscured by fluctuations. This is the case with climate change. About 50 years ago, when a team of researchers published "Limits to Growth," warning about economic and environmental collapse, climate change was still largely imperceptible. Even in the following decades when more scientists started to sound alarm, there was a lack of urgency. One explanation is a phenomenon called “creeping normalcy”, which describes how one’s baseline standard for what constitutes “normalcy” shifts gradually and imperceptibly. Under such conditions, extreme scenarios are hard to imagine. In addition, businesses had little incentive to heed those warnings. Considering that our economy is based on profit maximisation at the lowest possible price, doing the right thing can put an organisation out of business. Exploiting the cheapest source of labour and externalising the costs of environmental destruction, on the other hand, reaps substantial rewards. The failure of perception coupled with the problem of misaligned incentives cost us valuable time.
Framing also plays a role in perceiving change as problems and threats are identified through the construction of frames. Frames are like lenses that make it possible to see some things but make it difficult to see others. If no frame for an event exists, then the event is extremely difficult to anticipate. It’s a problem of expectation and sense-making. Even if organisations systematically scan their environment for signals, information that doesn’t fit into a predefined frame appears irrelevant. Frames direct attention to information that influences decision-making. Despite climate change being a widely discussed issue today, many businesses still don’t consider it urgent. A survey by PwC found that businesses have a potential blind spot on climate, with only 19% of C-level executives citing climate change as a serious risk to their company. The fact that it is not perceived as a serious risk is a major obstacle to meaningful action.
Failure of inaction
In this stage, the signs of deterioration are becoming gradually visible. However, the group doesn’t even try to solve the problem. Diamond suggests that inaction can result from both rational and irrational behaviour.
A group of perfectly rational individuals can produce results that are collectively irrational. Such a group reasons (correctly) that it can advance its own interests by harming others or nature. The reasoning is correct, despite it being morally reprehensible. This behaviour is called selfish-actor myopia. A common example is when businesses externalise costs associated with handling common-pool resources like air, water, fisheries, pastures, etc. The overuse or abuse of these resources presents a public goods dilemma known as “the tragedy of the commons.” Overfishing, fast fashion, and global coffee overconsumption are examples of how rational actions based on personal needs and short-term interests have harmful effects, making the situation worse for everyone. So even if signs of environmental degradation become visible, they don’t lead to action because businesses are compelled to act in their own interest. As free markets don’t reflect the true cost of products and services, they encourage harmful behaviour toward both natural and human communities.
Another impediment to action is the cost and effort associated with major change. Weitzel and Jonsson found that the costly and disruptive effects of change prevent businesses from taking corrective action. In addition, because the threat seems distant, the policy of “wait and see” appears more attractive. Since at this stage, businesses lack clarity on what type of problem they are dealing with, their initial response tends to be denial and deflection. But regardless of whether the business deals with minor fluctuations in the market, major inflection points, or permanent environmental change, Weitzel and Jonsson argue that inaction is not an acceptable solution. Unnecessary delays simply add to the costs and risk of unavoidable change.
Inaction can also be the consequence of irrational behaviour that is harmful and even suicidal to humanity. Such irrational behaviour can arise when the status quo is favoured by some deeply held values to which we cling. Materialism is an example. The accumulation of resources was once an adaptive behaviour that emerged early in human evolution. Exploited to serve the global industrial economy, it is now one of the most powerful cultural values. In our culture, how much we possess has become synonymous with how happy we are. While there are clear signs that our lifestyle is taking a toll on our natural environment, we persist in our error and refuse to draw inferences from increasingly unambiguous evidence. "Living with less" as a counter-concept is only slowly taking off as its adversaries tend to emphasise personal sacrifice and withhold the benefits of stepping off the hedonic treadmill. Diamond observes that rigid opposition to environmental action often results from values acquired early in life and never re-examined:
"It is painfully difficult to decide whether to abandon some core values when they seem to be becoming incompatible with survival. At what point do we as individuals prefer to die than to compromise and live? All such decisions involve gambles, because one often can’t be certain that clinging to core values will be fatal, or (conversely) that abandoning them will ensure survival. Perhaps a crux of success and failure as a society is to know which core values to hold on to, and which ones to discard and replace with new values, when times change."
We also have trouble letting go of the decisions and ideas we started out with, even if our survival depends on them. Weitzel and Jonsson observed that organisational leaders under pressure tend to increase commitment to the present course of action. This is especially true if they were involved in its formulation and had success with it in the past. Nothing is as blinding as past successes, which are often used to justify present strategies. Along with the need to maintain predictability, these factors predispose organisations to conservative action. Stress associated with organisational decline can also lead to threat rigidity. Its cognitive effects limit information processing, such as a reliance on prior learning and expectations and paying attention to dominant cues. In such situations, leaders tend to adopt an authoritarian style and develop a narrow vision as they fail to involve others in decision-making. They are also more likely to focus on more familiar issues like efficiency rather than making critical decisions about actions affecting the future—decisions about which they can be far less certain.
The leadership may also lack the knowledge, insight, or know-how to deal with new or changing conditions. This is especially true for an existential threat such as the climate crisis. According to Paul Hawken, science can help us understand the severity of the threat but falls short of providing effective and practicable instructions on how to avert it. In addition, the uncertainty in interpreting the information about environmental shifts makes it more difficult to agree on the direction in which the organisation must move. However, this shouldn’t be an excuse for inaction. As Hawken writes, "In business, as in science, the most important thing to know is what you don’t know. Admitting ignorance can be a powerful inducement to caution.”
Failure of resolution
At this stage, the signs of decline continue to multiply, yet the group struggles to find a solution. The decline may not be immediate, but it becomes more likely that the right changes aren't made. With increased pressure, the group becomes more stressed, chaotic, and discordant. Some of the signs that the group has reached the stage of resolution failure include fractured coalitions, a decline in morale, competition for declining resources, and an exodus of talent. The latter is already manifesting on an economy-wide scale. For example, there is a growing number of “climate quitters,” i.e., people who leave companies whose environmental values do not align with their own. According to climate campaigner and former Unilever CEO Paul Polman, climate quitting is more prevalent today because the crises we're facing are existential.
Failure to solve the crisis is often due to decision-makers under stress favouring quick or expedient solutions rather than creative and radical ones. Fear of the unknown and the reluctance to enter uncharted territory are more likely to lead to first-order incremental changes. This usually means implementing efficiency and cutback measures, using the same structures, processes, and people, and retaining the same power structures. In the context of the climate crisis, this pertains to measures falling under the "green growth" strategy. Green growth is an example of an incremental solution that fails to address the delusion of infinite economic growth.
Another reason groups fail to solve the problem is a clash between their short-term and long-term motives. Governments, for instance, tend to operate with a short-term focus. They feel overwhelmed by imminent disasters and pay attention only to problems that are on the verge of explosion. What makes things more challenging today is the prevalence of multiple crises happening at the same time. So even if organisations focus on climate action, their investment priorities tend to shift amid new economic and geopolitical turmoil. A recent EY survey of senior corporate finance leaders found that ESG investments experience budget cuts to meet short-term earnings goals. Stalling on climate action might look good on the balance sheet, but it damages the business in multiple ways. In the short term, budget cuts undermine the financial benefits of climate initiatives and create dissatisfaction among sustainability professionals driving them. In the long run, a slower pace of climate action only deepens the crisis we find ourselves in.
Another impediment to finding an effective solution is the tendency to discount the future in favour of today. Future discounting is the argument that it might be better to harvest a resource today than to leave some intact for harvesting tomorrow. The explanation is that profits from today’s harvest could be invested and that the interest accumulated between now and some alternative future harvest time would make today’s harvest more valuable than the future harvest. Any adverse consequences are passed on to the next generation, which cannot vote or complain today.
Although groups reached this stage because they previously failed to find and implement an effective solution, Weitzel and Jonsson argue that, paradoxically, now may be the best time for a radical reorientation. They found that moderately high stress levels encourage serious examination of alternatives. These conditions are conducive to creating a climate amenable to change. Conflict can be managed and subordinated to the need for survival. To avoid decision-making dysfunction, the organisation can take advantage of conflict between coalitional groups and seek diverse input from internal and external sources. This process may be the catalyst to institute second-order or “frame-breaking” change, in which a major reorientation of products, services, processes, or technologies happens. However, even if an effective reorientation plan is achieved, the third stage of decline may not be reversed unless the plan is successfully implemented.
Jarod Diamond suggests that if a society didn’t manage to find a solution to the crisis it might be because the problem is beyond their present capacities to solve, a solution may exist but be prohibitively expensive, or their efforts may be "too little too late".
Failure of reversal
The onset of a crisis is the last chance for reversal. As the group reaches this critical point, it will either undergo a radical transformation or collapse. Crisis conditions will exacerbate chaos and disorder at this stage. As success becomes problematic, divisiveness will erode the social fabric, decreasing the possibility of recovery. To recover from chaos, a major turnaround will be needed. Its goals must be substantive, not simply short-term survival. This will require radical changes in strategy and ideology. Furthermore, the need for immediate action must be balanced with the necessity to avoid ill-considered solutions. A comprehensive risk analysis will be required, as poorly performing organisations under stress tend to take more risks. Leadership must be replaced to bring in new ideas and eliminate old consensus. Instituting a "frame-breaking" change is the only way to reverse the decline, but not all transformations succeed. Not acting, however, means certain decline.
An effective turnaround might be hampered by the continued exodus of talented employees and the resulting changes in workforce composition. There will also be resistance to change. If these obstacles are not overcome, the organisation will enter the final stage of decline, which is irreversible. Conflict is likely to increase once it becomes clear that the organisation will not survive.
Conclusion
We face enormous challenges. To solve them, we need to use the full range of strategic foresight tools available to us. Scenarios are one of them. Desirable futures, for example, can help us guide society towards its future potentialities and give us radically new possibilities for human agency to shape the world. But we also need to engage with chaos and collapse. This means learning from history. Understanding how past crises developed can help us confront the cognitive biases, outdated values, and entrenched behaviours that enabled their progression. The key lesson is that our responses to existential crises haven't changed. As we move from denial to procrastination to mere course correction, we only exacerbate the situation and fast-track towards collapse. Understanding how we failed in the past should motivate us to take radical action today. Crises are opportunities for transformation. We just need to acknowledge how close to the brink of collapse we already are.
References:
Catino, M., Organisational Myopia—Problems of Rationality and Foresight in Organisations, Cambridge University Press, 2013
Diamond, J., Collapse—How Societies Choose to Fail or Survive, Penguin Books, 2011
Hawken, P., The Ecology of Commerce—A Declaration of Sustainability (Revised Edition), Harper Business, 2010
Weitzel, W., & Jonsson, E., Decline in Organizations: A Literature Integration and Extension. Administrative Science Quarterly, 1989