Tim Wood Powell     The value of knowledge

On a bright September morning in 2001, the world changed quickly when two commercial airliners headed west out of Boston’s Logan Airport were hijacked, then turned around and deliberately flown into the two main towers of New York City’s World Trade Center.

I watched in shock from a safe distance on a pier on the Hudson River as the buildings burned. How, I thought, was it even possible that such an event was not detected in advance, and thwarted?

Our models reflect our expectations

In subsequently reading accounts of that tragic day, I came to realize that our Northeast radar defenses had been literally oriented only in one direction — pointed eastward toward the Atlantic, from where an attacking aircraft or missile would almost certainly originate. In theory.

In short, our existing defense models were well-prepared for what was “likely” to happen, but in fact did not — and ill-prepared for what did actually occur, however improbable it seemed.

Nearly seven years later, I observed a parallel set of circumstances when problems in two relatively small slices of the US economy — mortgages and credit derivatives — caused several major financial institutions to fail and nearly brought the global economy to its knees.

The Pearl Harbor Paradox

This recurring pattern began to trouble me. As I read the intelligence literature, I found that this “Pearl Harbor paradox” — so named after the archetypal unlikely disaster that caught people tragically unprepared — is not so uncommon. It seems to be human nature to trust our existing risk models to work like they are supposed to, however mixed the results may later, in hindsight, be.

One wonders what risks we face today that do not appear in even our most sophisticated risk models — and that, left unaddressed, could lead to dire consequences.

One driver that can be relied upon to introduce such new, uncharted risks is any major disruption in the “enterprise ecosystem,” or business environment. Digital branding is a major disruption to the ways we are used to doing business.

Mad Men (and women)

In the late 20th century, the rise and eventual dominance of “mass market” branding led the large advertising and PR agencies to flourish. There was huge, concentrated power in Big Media (especially TV) — and the equity represented by brands became an ever-larger piece of the enterprise balance sheet.

Branding efforts powered by broadcast media, by their very nature, are fundamentally “command and control” in the way they are managed. One coherent, coordinated set of positioning messages is sent down the global pipelines, creating widespread and immediate awareness and impact.

The age of digital and social branding

Fast-forward to the early 21st century — the present. With the ascendancy of digital and social media — which in 2016 surpassed broadcast media in dollar volume, and show no signs of slowing down — the top-down branding models are fast becoming history. Messages are now reflected through a seemingly endless prism and echo chamber of digital views, likes, replies, and forwards.

The loss of control over branding has been breathtaking and rapid. And coupled with our hyper-polarized electorate (which is also our consumer base), it leads to confusion, distress, and cascading branding disasters that seem out of our control — because they are.

What are the consequences?

In the short term, this leads to:

• increasingly rapid personnel turnover in the marketing function (which we are seeing),
• diffusion of accountability for the “stewardship” and protection of brand equity (which we are seeing), and
• rapid and often lasting loss of that equity in firms directly impacted (which we are seeing.)

In the longer term, it is leading brands to seek new adaptive forms of influence based on social network management and hyper-targeting. When the game changes, you change with it — or lose.

This is analogous to the radical adjustments made by the US military under Stanley McChrystal in the Middle East, who abandoned his West Point-honed sense of command and control for a “team of teams” network model — because that is the only thing that would now work in his new strategic ecosystem.

Dominant enterprise risk models

It is encouraging that, starting in the 1980s, large organizations have grown more sophisticated in how they address risk. Over 80 percent of US companies and their auditors use an Enterprise Risk Management framework called COSO to evaluate and monitor business risks. Some industries have developed their own specialized risk frameworks — for example, banks have the Basel Accords to assess their vulnerability to financial downturns. Though each of these frameworks includes at least some mention of “reputation” or brand, it is most often at the level of an operational risk, i.e., one to be managed tactically.

The point is that none of these existing enterprise risk frameworks — each several decades old — adequately accounts for the new and significant financial and reputational risks posed by digital and social branding. And why would they be expected to? In the late 20th century, when these “risk 1.0” models were developed, few could have foreseen the sea change currently underway — from a mass-market/broadcast-dominant framework, to a micro-targeting/networked framework.

The strategic ecosystem has changed so completely that the old models are inadequate — dangerously so.

Digital and social branding — and its opportunities and threats — is here to stay

This is not to suggest that enterprises should throttle back on digital branding — an approach that, regrettably, some of them have pursued. On the contrary, digital branding is here to stay, and will only gain in stature and importance.

It IS to say that companies need to rapidly and meaningfully address this “brand risk 2.0,” to measure its potential impact, and to recognize it as an evolving driving presence — rather than merely an episodic nuisance. Most importantly, people (whether internal or within agencies) need to be (1) clearly assigned the responsibility of managing this risk and (2) given the resources to address it, through an executive-level, or even Board-level, initiative that is both focused and comprehensive.

My thanks to Patrick Marrinan of MSA and David Carrey of Columbia University for their thoughtful comments on this article.  Photo “Life Goes On” copyright © 2001 Tim Wood Powell, all rights reserved.

In order to explore these issues among business leaders, today I am launching a Brand Equity Risk inquiry on behalf of the Society for New Communications Research (SNCR) of The Conference Board.  If you work with risk, and have about ten minutes to contribute to our findings, please click here. We plan to publish results in Q1 2019.  Thanks!

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