Unintended Consequences

The onset of winter in Alaska is inevitable; there is no such inevitability when it comes to our past experiences adequately preparing us for an uncertain future.

I’ve just wrapped up my first tour as an SPE Distinguished Lecturer. I gave talks in Grand Junction CO, Denver, Minot ND, Anchorage AK, Fairbanks AK, and San Ramon CA (by the way, the high when I was in Fairbanks was minus 9 degrees C). The audiences have been great – very involved, lots of good questions.

First, two observations about Alaska. 1) The unofficial luggage of Alaska is a large plastic container wrapped with duct tape. I saw at least a dozen of these put through as checked baggage by various people in the airports there. And 2) Alaska is incredible. This was my first time to the state, and I was gawking out the windows of the plane, both from Seattle to Anchorage and from Anchorage to Fairbanks. The attached photos are of the Alaska Range southwest of Fairbanks. I would have taken pictures of the Alaskan coast from Juneau up to Anchorage, but it seemed rude to lean across the woman who was in the window seat, so these will have to do. I can see why people who grow up here often don’t want to leave.

Second, what I found fascinating in Minot was that the main topic of conversation wasn’t the price of oil, the success of the fracking jobs in the Bakken formation (one of the hottest oil shale plays in the country), or the production rates out of the wells. It was rent – specifically, how outrageously high rents had become for single rooms in houses, let alone apartments. It was all anyone talked about, even those who own their houses (“I can’t believe that the rent for that apartment is twice what my mortgage is!”).

Welcome to a 21^st century boom town. Minot (population ~45,000) is actually in better shape than Williston (population ~15,000 before the recent flood of laborers). There are stories about young men living in their cars, not because the rents are too high, but because there are literally no places left to rent (that should be fun when winter hits). While long-term residents are happy for the influx of money into the local economy (especially those who are receiving royalty checks), they are less than thrilled with the sudden influx of thousands of young men whose idea of a good time in the evening is, shall we say, more lively than the norm for that area. The disruption to the serene rural lifestyle which has existed for generations is enormous.

And it’s not just the rents and the jockeying for “alpha male” status among the newcomers during happy hour. The second-most discussed issue was who should pay for repairing and maintaining the roads which are being crushed by the constant parade of trucks back and forth to the field operations, and which roads should be repaired. One of the reasons my presentation was moved from Williston to Minot is that what used to be a 5-minute trip across town in Williston can now take 30 minutes, according to some of the attendees at my talk.

Now, the benefits from domestic production of energy are obviously huge, and the benefits to North Dakota have been huge. But the law of unintended consequences will not be denied; with almost every advance, benefit, or boon to humanity comes a negative side effect which may or may not have been foreseen. Our ability to harness machines and energy to do hard work for us has increased life spans and leisure time, but also obesity and diabetes. The world is a land of trade-offs.

I have a colleague at the University of Texas who is involved with a group investigating possible uses of geo-engineering to mitigate the effects of global warming, things like spraying sea water high into the atmosphere to reflect sunlight, or dumping iron into the ocean to promote algal blooms which will absorb significant quantities of CO2. These ideas make any sane person nervous – the probability of major unintended consequences is extremely high. To their credit, the group is keenly aware of this, and their reports are quite open about these possibilities.

In the September, 2011 issue of the Harvard Business Review, Gokce Sargut and Rita Gunther McGrath published an article entitled, “Learning to Live with Complexity.” In it, the authors point out that most man-made complex non-linear systems (e.g., economies) are becoming increasingly interconnected, and as this happens, the volatility of these systems increases. Such systems are marked by tipping points and butterfly effects, such that nearly identical starting conditions can result in wildly different results. Greater interconnectivity increases the frequency with which the system crosses these tipping points, cascading into new meta-stable states which do not resemble past history at all. Forecasting with any degree of accuracy is impossible; unintended consequences abound. According to the authors, this is one of the two enormous problems facing managers in today’s complex world (the other being the inability to make sense of a situation when it is impossible to get an overview of how all the parts of a complex system are interacting).

This is a huge issue, one on which I’ll write more in future postings. We need to come to grips with the fact that our experiences as a society for the past several hundred years may not prepare us at all for what is to come. That’s why our strategy development process must look beyond the obvious, identify unintended outcomes where possible, generate contingency plans, and allow us to thrive under a wide variety of possible futures. This is challenging to say the least, but who doesn’t like a challenge?

And if you ever fly to Alaska from Seattle, get a window seat on the right-hand side of the plane.