Jungle Love

Risk Management Strategies Based on Emulating Animals in the Jungle

With such events as wildfires, the subprime mortgage fallout, and mergers and acquisitions, the corporate world can at times seem like a jungle. No one knows that better than author Gert Cruywagen, whose book, “Jungle Risk Management,” details the risk management lessons corporations can learn from the African bush.

According to Cruywagen, 10 percent of all economically active businesses in the United States — about 600,000 — disappear each year. In other words, stagecoach operators, vinyl record companies, the Beta format video equipment manufacturer, Enron and Arthur Anderson all did not manage their risks properly, he said.

To avoid following in those footsteps, Cruywagen suggested more than 13 lessons companies can learn from the jungle, which he presented at the recent Risk and Insurance Management Society 2008 Annual Conference. Following are a few suggestions.

Risks and Rewards

The Chinese ideogram for risk consists of two symbols: one for hazards and one for opportunities. This is important to remember because some companies fail to exploit their opportunities, Cruywagen said. If you look at the animals that are alive in the jungle today, “the ones that are around are not necessarily the biggest, the meanest, the smartest, or the ones with the longest teeth, but [the ones who have survived are] the ones that have managed their risks the best, the ones that were able to defend themselves against the threats, and the ones that were able to exploit the opportunities to make sure that they had food for survival,” he said.

Strategies That Fail

A couple of bird strategies are not worth emulating because they do not work, Cruywagen said. The dodo bird failed to survive because its risk management strategy was nonexistent. Humans and animal predators did not eat the birds, so the bird did not develop any defenses. However, when the Dutch arrived in Africa in the 1600s, they brought over animals such as dogs and rats that ate the dodo’s young chicks and eggs. By 1685, less than 100 years after the bird was discovered, it became extinct, he explained.

The ostrich also has a poor risk management strategy because it sticks its head in the sand, Cruywagen said. The ostrich is the largest bird in the world, it has the longest neck, the longest legs and it runs the fastest. At the end of those legs are toes with very fierce nails. So the ostrich theoretically is able to defend itself, and it’s able to look far into the distance, Cruywagen said. Yet he noted that the bird’s failing is that when it sees an enemy, the ostrich sticks its head in the sand, exposing its vulnerable neck to predators.

In the business world, that would be like a supermarket chain building in a flood zone even though it is told that buildings in that area would not be applicable for insurance, Cruywagen said. Years later after there is a big flood, the supermarket finds it doesn’t have insurance for its losses and goes out of business.

Camouflage

Camouflage is used by African kudu antelope and giraffes to avoid being eaten. It also is used by cheetahs and lions to stalk their prey, but this strategy is only partially successful, Cruywagen said. Camouflage cannot be the only means an animal employs to avoid being eaten because the strategy only addresses one of the senses — sight. The moment the animal moves, it gives itself away, he explained.

Still, camouflaged businesses can survive and produce a profit, especially when they operate under the radar of their competitors.

“Camouflaged businesses often operate in niche or specialist markets and are content with their market share and market concentration,” Cruywagen said.

However, he cautioned that once such companies try to venture beyond their own area, they become visible and the subject of competitors’ attention, which can lead to an onslaught of their customer base, product range, their staff or the company itself. “If you get discovered, you become lunch,” he said.

Speed and Agility

The survival of some animals such as impala, hartebeest and springbok depends on their ability to outrun and avoid their predators. Although the cheetah can reach speeds of up to 85 miles per hour, the springbok can avoid becoming lunch because it is a very fast and agile animal that can swerve left and right on short notice, Cruywagen said.

This strategy of using speed and agility can be applied to company decision-making, he said. For instance, when there was a small fire at a Phillips Electronics plant that supplied cell phone chips to cell phone manufacturers, Nokia reacted quickly and ordered supplies from another plant — a decision that allowed the company to continue manufacturing phones. On the other hand, Nokia’s biggest rival, Ericsson, was slower to react, Cruywagen said, so when the company wanted to order more chips, nothing was available. As a result, Ericsson couldn’t supply its customers, and the company lost more than $400 million. Thus, “the quicker and more agile you are to make decisions, the better for you,” he said.

Fighting Back

In the animal world, the saying “the best form of defense is attack” rings true, Cruywagen said. The oryx has sizable horns on its head, larger than most other antelope. “When he arrives at a water hole, all other antelope walk away quietly,” he said. And if a lion or leopard tries to attack the animal from behind, it is able to push back its head and fight off an attack.

An example of a company fighting back is Woolworth, the large retailer, Cruywagen said. Initially, the company opened its stores close to railway stations in downtowns of most cities. The company’s leaders recognized that people coming home from work would go out of the stations into their shops, buy their products, then go home. But as the United States changed from a public transport society to an auto society, fewer people used trains and fewer people went into Woolworth.

However, Woolworth’s leaders fought back by recognizing that consumers were buying more sneakers and sport-type shoes. So the company changed its name to Foot Locker and today, there are Foot Lockers, Lady Foot Lockers and Kids Foot Lockers all around the United States, Cruywagen said.

Confusion

Sometimes it is helpful to confuse an enemy like the zebra does, Cruywagen added. “When you see a zebra, it looks strangely out of place in the African bush, because all other animals are black or dark gray or brown with blotches. But the zebra’s coat is useful when you consider that most predators only see in monochrome,” he said. And when zebras stand in a bunch, predators are confused because they can’t distinguish one animal in a mass of bodies.

When planning the launch of a new business or take-over of a rival company, it’s helpful to keep plans hidden so that rivals can’t interfere, he explained.

Teamwork

“A very good strategy in the animal world is fantastic teamwork,” Cruywagen said. Meerkats can only survive by operating as a team, with each one having its own responsibilities in the team. Other animals that work in teams in Africa are wild dogs. “They are the most successful hunters in the bush, with a success rate in excess of 80 percent,” he said.

A lead dog will chase down prey and when the dog gets tired, it falls back and another dog takes over. That cycle continues until the prey eventually tires, Cruywagen said.

“Imagine if this were a modern day company and one said to the other, ‘I’m tired of being the safety,’ and the other one said, ‘it’s not in my job description.'” In the African bush, the team would fail, Cruywagen said.

In the business world, if companies fail to have a contingency plan and don’t work as a team, then they might be ill-equipped to handle a disaster. For example, during 9/11, nearly 700 staff from Cantor Fitzgerald died. Yet in less than four days, the remaining employees “were able to get operations up and running again because of their robust contingency plans, and because colleagues knew each other so well and worked so closely together as a team,” Cruywagen said.

Armor

“The strategy of body armor is also very successful in defending yourself against predators. However, you have to sacrifice something,” Cruywagen said. “In the case of the tortoise, he had to sacrifice speed. But if you are patient enough as a predator, you are able to get him. You just have to wait for him to stick out his head.”

In the business world, the body armor strategy is like a company that only invests in stocks of companies with tangible assets, Cruywagen said. Boston-based Marlin International took this strategy, avoiding investments in dot-com companies. The strategy paid-off during the dot-com burst, but the company also could not reap as big of rewards as other companies who are willing to take greater risks, he said.

Overwhelm Adversaries

Impala are “the McDonald’s of the bush,” because the animal has what looks like a capital “m” on its rump; it also is prey to lions, cheetahs, leopards, wild dogs, hyenas, jackals, crocodiles and other predators, Cruywagen said. Yet the key to the animals’ survival is their ability to hold and time the birth of their lambs. Herds will drop their lambs all together within two days, so predators are able to have a feast on some of the babies. But because there are so many baby impala around, predators stuff themselves so much that they cannot eat any more, allowing many of the lambs to just grow during that first critical week or two, rather than having to run away, he explained.

Chain stores employ this strategy, Cruywagen said.

Not every single store in a chain will be wildly profitable, but as a whole, the chain is successful.

Retreat

The idea of retreat sounds like an animal or company is giving up, but Cruywagen said this strategy can at times be useful. Whenever hippos are threatened, they go back to the water where they have a safe haven, he said. The problem, however, is that the strategy is predictable. So if you want to catch a hippo, all you have to do is wait on the calf to return to the water after a feeding. “Companies are often trapped into complacency by past successes, and they fail to identify or recognize the early signs of negative changes in the environment in which they operate their businesses,” Cruywagen cautioned.

Top of the Food Chain

Surprisingly, Cruywagen didn’t recommend companies roar like a lion. While lions are at the top of the food chain, this strategy only works as long as the rules are obeyed and the “king” doesn’t become complacent, he said. “Most lions die from diseases, attacks by their own species, or starvation in times of drought and famine. … If you look at companies or industries that we viewed as kings of the jungle, like the U.S. auto industry and Boeing, they were eventually kicked off the throne by their own competitors from the inside.”

Size Matters

The African elephant is the largest land animal in the world, and because it’s so large, it has no enemies, Cruywagen said. However, because they are so large, they become their own worst enemies. For example, in game parks and reserves, elephants destroy their own habitats trying to get to the roots of trees, until there is nothing left for them or other animals, he explained.

As humans, that’s what we’re doing as well, Cruywagen said. “At the risk of sounding like Al Gore, the worst thing that currently faces us is deforestation,” because humans are polluting their own environment, he said.

Ultimate Risk Manager

Ultimately, Cruywagen suggested companies behave like the jungle’s true survivors — crocodiles — who have been in existence for 200 million years. Crocodiles employ the best risk management strategies — they’re quick in going after what they want and in reacting to enemies, use camouflage, work in teams, have body armor, and use all their strengths to overwhelm their enemies, retreat to their safe havens, are at the top of the food chain (they eat lions) and are large in size, he explained.

So the lesson learned from the success of the crocodile is that one risk management strategy alone is not enough. “The choice is yours,” Cruywagen said. “Do you want to be lunch or the luncher?”

This article was based on the RIMS Annual Conference session, “Jungle Risk Management — Risk Lessons from the African Bush.” For additional details on what companies can learn from the jungle and how to avoid following in the flight path of the extinct Dodo bird, visit www.junglerisk.com.

Topics USA Risk Management