This December the world watched the hacking drama at Sony Pictures unfold, and the real world handed us a “disruptive event” we couldn’t have made up. When we use business simulations to teach strategic finance and strategic thinking to senior leaders, we often add a disruptive event to a final round to really challenge the participants’ strategic agility. Of course, one of the concerns with this approach is that it can seem unrealistic to suddenly encounter an unforeseen event with business changing short- and long-term consequences. Even when we do, our clients usually tell us, “Nothing like that could happen here.” Until now!
Not only did the event meet all the criteria we try to build into our simulations; a one time disruption with definable financial consequences, potentially larger behavioral impacts, and the necessity to change long held assumptions, the reaction unfolded in a pattern we see in the classroom. The first articles in the business press after Sony cancelled release of The Interview discussed financial tradeoffs Sony was facing: scrapping the whole picture caused a large write-off, but a fair amount might be recoverable from insurance as long as the whole picture was cancelled, with no secondary release on DVD or Video on Demand. There were discussions about cancelling marketing events, agreements with theater owners, and the liabilities surrounding the release of employee data. We see this in our classes as well; participants first discuss easily quantifiable costs and focus on categories already measured.
As the magnitude of the Sony situation became clearer, the discussion changed to less obvious but potentially larger behavioral impacts. Leaving aside the obvious free speech and national security impacts that eventually dominated the headlines, Sony was confronted with large issues:
- What is the impact on the company’s reputation if it is seen to give in to threats?
- What will make the company’s employees feel safe?
- What is the company’s responsibility to theater owners?
- How can one communicate candidly in a digital world?
- How much data security is enough?
- How to weigh the value of artistic expression versus the risks of provocation?
And the list goes on.
In our simulation debriefs the discussions about these “disruptive events” are lively and interesting, and by the end our participants generally expand our long list of potential impacts. Inevitably it becomes clear that quantifying that which we do not measure - the behaviors of our clients, employees, suppliers or neighbors- is necessary to understand the whole business impact. Often the size of these impacts dwarfs the costs seen on this quarter’s income statement.
Unlike real life, our simulation participants have one chance to react, their decisions lock the short- and long-term consequences into their simulation results. Thankfully for the rest of us, we and companies like Sony can continue to adjust in the face of a crisis, changing our approach as our understanding and the events unfold.
