PRATEEK RAJ
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Business in the times of information paucity and uncertainty

3/25/2020

1 Comment

 
I was quoted in the Economic Times, in an article (.png) by Dinesh Narayanan on "Data blackhole in Q1 2020 would challenge govt policymaking and corporate decisions". Here is the quote:

Unavailability of data would have implications for firm and individual level decision making. "This is a Black Swan event. Firms can plan for risk. But what we are facing is uncertainty not risk. Current forecasting techniques and methods would be useless,’’ according to Prateek Raj... Raj says true uncertainty leaves firms clueless. Government-supplied data, while important, would not be enough anymore. Firms would have to constantly search for signals in other data such as Uber orders and Amazon deliveries. ``What they would need is an ensemble of data from various sources.’’...Raj says experience from the 2008 economic meltdown showed that firms that were more decentralised and whose local managers were empowered coped better after the crisis. A similar experience may be in store now as well for both firms and governments although the trend in India seems to be towards centralisation. 

Now some context. Information is the chief driver of how business gets done, something that is one of the main learning points in my PhD course on Evolution of Business and Markets. Just as the printing press revolutionised business, triggered the decline of guilds in Northwestern Europe, and gave rise to modern corporations, the same way too much uncertainty and data can force firms to change the very structure of their business. In a 2016 article for LSE Business Review, I wrote that "in uncertainty, strategic advantage comes from organisational form not plan". Firms in times like this coronavirus pandemic need to recognise that uncertainty is different from risk. While risk can be mitigated by careful planning, uncertainty requires firms to recognise that blueprints become less useful, and hence firms need to start opening all their eyes and ears for any new information, responding quickly to changing situation. The idea seems obvious, but it is not so obvious, because such a change in form of doing business requires giving more autonomy to local managers, and moving away from a centralized top-down approach. A useful research that also supports this idea is by US-based economists Aghion, Bloom, Lucking, Sadun and Reenen, which found that "firms that delegated more power from the Central Headquarters to local plant managers prior to the Great Recession out-performed their centralized counterparts in sectors that were hardest hit by the subsequent crisis." as they were better at gathering local information.
1 Comment
Eva Little link
2/4/2021 05:44:26 am

Thanks for sharinng

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    Prateek Raj

    Personal blog. Views expressed are my own, expressed in personal capacity.

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