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Strategy and Unintended Consequences

Adam Hartung, Manny Teran
Silicon Valley Bank, SVB, fail, bank run, bank fail, FDIC. unintended consequences, recession, trends, AI, mobility

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The biggest risk of myopia is unintended consequences.  We set out to do one thing, and we don’t see the after-effects that happen – on customers, suppliers and employees.  Also, by focusing intently on our existing business we don’t see how unintended consequences of things outside our business can have enormous impact.  And, if we don’t see it coming, we don’t prepare our Value Delivery System for new risks.

This podcast overviews how Silicon Valley Bank set out to fulfill its Value Proposition of “financial safety for business” by building a robust Value Delivery System that included large business depositors, and investing the safest assets – Treasury bonds.  But when the Federal Reserve declared war on inflation, it made clear there was no end to the heights it would take interest rates.  This put Treasury bond asset values at much greater risk.  And it made having a narrow base of very large depositors a much greater liability portfolio risk.  The leaders failed to see the problem coming quickly enough, and the bank failed when they had to sell bonds to cover depositor withdrawals – eating up the equity.  They failed to see how unintended consequences of something outside their control -Federal Funds rates – jeopardized their future.

This podcast goes on to overview how demographics, a topic often covered here, has been a driving influence in Russia’s aggressiveness to overtake neighboring countries.  And China’s aggressiveness to practically enslave their Uyghur population.  Demographics are affecting every country, and every business, as we adjust to fewer workers for growing demand from an aging population.  This has unintended consequences for everyone.  Yet, too few businesses are addressing this in their strategic plans.

Thinking points:

  • Have you identified the risks of higher inflation – and higher interest rates – on your business?  How long can you grow if interest rates remain this high?
  • Have you identified the risks to your business of sanctions on China, Russia, Iran – and other countries? What are the supply chain risks? Demand risks?
  • Do you take time to take a wide look at the world, and trends, to understand how changes could have an unintended consequence on your business?  What about demographics, ESG, mobility, Gig economy, generative AI?