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In the past, companies have tried to manage risks by focusing on potential threats outside the organization: competitors, shifts in the strategic landscape, natural disasters or geopolitical events. They are generally less adept at detecting internal vulnerabilities that creep into organizations and other human-designed systems. Indeed, as companies increase the complexity of their systems – products, processes, technologies, organizational structures, legal contracts and so on – they often fail to pay sufficient attention to the introduction and proliferation of loopholes and flaws. Ericsson, Barings Bank and Comair are but a few examples of companies that have suffered disastrous breakdowns in their complex internal systems.

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Managers have long relied on their intuition to make strategic decisions in complex circumstances, but in today’s competitive landscape, your gut is no longer a good enough guide. The pace and scale of change, the speed and diffusion of innovation, and the volatility of financial markets are all increasing, while globalization is making an already dense web of business connectivity even denser. The results are unexpected phenomena and seemingly unpredictable collective events–ranging from fads to the sudden collapse of entire industries to stock market bubbles and bursts– that are emerging more frequently to disrupt the operating environment. Intuition, the ability to use your experience and history to discern patterns where other people may see nothing, is not only unlikely to help, it is often misleading. Human intuition, which arguably has been shaped by biological evolution to deal with the environment of hunters and gatherers, is showing its limits in a world whose dynamics are getting more complex by the minute.