The Cost of Chaos
March 2025
Tariffs are on and off. Negotiations are happening and then not. Departments are cancelled, and then some are put back. Forecasts get doomier but contain multiple caveats. Stock markets tumble, and then slightly correct. Consumers report elevated uncertainty as cause for their pessimism. Federal Reserve Chair Jerome Powell wrapped his press conference by noting ‘uncertainty is remarkably high.’
Markets hate bad news, but they hate uncertainty more.
We are constantly sling-shotting between headlines in a news cycle that has moved from 24/7 to incessant and inescapable, each hour something else may or may not matter.
Uncertainty alone is challenging enough — but when its intensity, frequency, and emotional implications all intensify simultaneously, we face something more disruptive: chaos.
The origin of the word chaos comes from early Greek cosmology, from the primordial goddess Chaos representing the void or primordial lack of order that existed before things came into being. The modern definition is ‘a state of total confusion with no order.’
For many, that sounds closer to the current environment.
Uncertainty makes the environment difficult, but chaos makes it costly. And not handled strategically, the cost of chaos is significant.
The Uncertainty Challenge
Let’s start with uncertainty.
One meaning of uncertainty is a state of reality. The future is the totality of events that may or may not occur, which makes it uncertain. This is real uncertainty, which makes it difficult to make good predictions.
The other meaning of uncertainty is a state of mind. Not knowing what will happen causes anxiety, makes us feel uncomfortable, and makes us prone to biases during decision-making. This is psychological uncertainty, which makes it difficult to make good decisions!
The combination of real and psychological uncertainty creates the double jeopardy of delusion and paralysis. If we ignore real uncertainty and try to predict the future, we plunge forward with our delusions until the business hits the rocks. But if we bow to psychological uncertainty and anxiously wait for clarity to emerge—which it rarely does—we become paralyzed by inaction and the business drifts and sinks.
Delusion and paralysis aren’t great for organizations, but it runs deeper into our psyches.
Human beings do not like uncertainty. The most common response is to ignore it and pretend certainty exists. Others recognize uncertainty but often have unjustified faith in their ability to predict outcomes. Worryingly, this trait is particularly common and acutely an issue amongst subject matter experts. Another damaging consequence of our natural discomfort with uncertainty is that we commonly frame it as negative and being synonymous with ‘risk,’ and we reinforce this belief in everyday discourse when we speak to how we will ‘manage’, ‘overcome’, or ‘address’ uncertainty.
Uncertainty is a series of future events which may or may not occur. Whether or not these events are good or bad depends on what we are trying to achieve and how we are set up.
For leaders, uncertainty is increasingly familiar terrain. Yet, when the scale, speed, and emotional dimensions of uncertainty peak simultaneously, it crosses the Rubicon into chaos.
And then we have to pay for it.
The Cost of Chaos
Chaos, if we are not careful, is increasingly punitive as we lead our teams through it, and the costs compound!
Stalled decision-making: Over 2000 years ago Cicero claimed “More is lost by indecision than wrong decision. Indecision is the thief of opportunity.” Empirically this still rings true in modern organizations. Delaying decisions, especially around physical projects, leads to serious cost overruns and additional expenses. Lack of decision-making speed is correlated with stalled responsiveness, which creates drags on performance and profitability. Slowness or the continually waiting to make decisions creates redundant ‘analysis loops,’ which increases organizational costs. Indecision is also an unattractive trait for leaders. A study of over 2000 CEOs found the standouts were those with the trait of making decisions with speed and conviction.
Ineffective decision-making: Initial paralysis can lead to subsequent failed decision-making. The emotional overhang of chaos pressures our brains into some common traps, such as pattern recognition or emotional tagging. We abandon existing frameworks or fall into a host of red flags when facing chaotic environments, such as anchoring on misleading experiences or prejudgments or inappropriate attachments. My colleagues wrote an excellent book Think Again: Why Good Leaders Make Bad Decisions and How to Keep it From Happening to You.
Elevated operational cost: Being in a chaotic environment increases the pressure for more operating control, which can lead to direct operational costs such as increased inventory holdings, which impact cash flow and liquidity (or leverage if financed by debt). Additional facilities, equipment, or duplicating activities to hedge possible downsides further escalates these costs. Across a supply chain, delaying or changing decisions or delayed action contributes to rising expenses in transportation and logistics, as well as extended lead times for production inputs.
Lack of confidence: The inability to handle chaos well erodes confidence in a leadership team. When leaders exhibit delusion (the plow ahead), markets and investors begin to lose confidence that the leadership team is checked into the current environment. If instead leaders remain in paralysis (the decision-making holding pattern), stakeholders lose confidence as they perceive the leaders are indecisive or incapable of responding swiftly. Responding by trying multiple tactical initiatives to address the changing environment also backfires, as stakeholders assume they lack a growth strategy. Their reputations are linked to ignorance or inefficiency. Their perceived lack of a cogent and astute strategy erodes overall confidence in the company, which is reflected in share price. Private companies pay this cost too if customers, partners, or employees build similar perceptions.
Employee burn-out and lack of engagement: Working for an organization in constant chaos places an incredible strain on employee well-being. Initial crises often spur extraordinary work effort. Prolonged chaos - when it seeps into the work environment - drains employees, who begin questioning whether the effort and stress is ‘worth it.’ This is especially problematic when employees lose confidence that their management teams will make decisions, have a clear finish line, or are committed to the midterm. The cost of top-talent turnover and re-recruitment costs is high.
Downshifting to operations only: The larger costs of chaos are initially hidden. In chaos, leaders (and boards) become fearful of what will happen next, so they focus only on immediate concerns. Strategic thinking gets pushed to the side, replaced by daily operational huddles and cost monitoring. Proactive Survive is a capability, and if your company is in Survive mode – declare it – and begin the steps to manage through it and out! See chapter three of the SRT book for detailed guidance. Fear mongering is a trap. Postponing growth strategy has near-term costs (you are 6 months to a year later than others to market opportunities) but also a longer-term one (you deprive your team of building a true growth capability).
Mindshare shift away from the long-term: Perhaps the heaviest cost chaos plays is the biggest hidden one: the shift away from the mid to long term. An inability to forecast, a lack of comfort with upcoming and unpredictable changes, and an inert fear things will get worse means we resist making any mid to longer term decisions, as we fear we will get these wrong. But lack of midterm decisions quickly leads to lack of midterm thinking, and before we know it, our team is thinking about the day-to-day, not creating value over the midterm.
And this is just the short list!
What exacerbates these costs is they are self-reinforcing. When decision-making stalls, confidence falls. As confidence declines, more operational downshifting occurs. When employees are tirelessly working but see no promise of growth, they burn out faster (often taking their talent elsewhere). This negative flywheel effect, where chaos costs amplify other costs leads to a downward doom loop.
The worst part? In the immediate, from an outside observer’s perspective, it looks like you are doing the right thing. Markets, investors, and shareholders can initially reward leaders who are seemingly responding to trends (even if you're really spinning), and sometimes at first it feels like waiting to move is prudent. But the costs are adding up, then compounding, and then you are behind.
Avoiding the chaos tax:
The bad news about chaos is we cannot predict what is going to happen next. The good news is we do not have to: we can focus on making great decisions and prepare our organizations to succeed through it, if you are willing to do the work.
Here are some ways to avoid the chaos costs:
Reframe uncertainty: To open growth options requires that we first overcome the temptation to make predictions. Acknowledge the reality of uncertainty and build our strategy around it. The second thing we need to overcome is our fear of making decisions without having all the information. Remember, uncertainty is not inherently good or bad. The future is simply the totality of events that have not yet been fully determined. Whatever the future holds may present threats or opportunities, depending to no small extent on how we react to them. [Review Chapter one and two of the SRT book for guidance!]
Set – and test - your strategic beliefs: What sets high performing companies apart is they make decisions based on beliefs, not waiting for established facts. This is not forgoing data, data is one input to inform our beliefs, but by the time factors have become established knowns, there is not insight: everyone has it. To grow ahead of others, we need to articulate, test, and act on beliefs. Communicating your beliefs also means you have recruited testers around the organization who will help in assessing the situation, responding to changes, and adapting proactively. [Chapter four of SRT helps you in doing so!]
Identify your kickers and killers: When setting strategy facing uncertainty, leaders should shift the conversation from ‘what could happen’ to ‘what could make us’ or ‘what could break us’, that is your kickers and killers. Identify the potential big upsides and also the business model killers (For example, 90% of a critical and price sensitive supply is in China). When you have killers, you need to start making moves, even when beliefs remain unproven, to address and protect. But you also should start exploring possible kickers to move ahead of others. [Chapter two of the SRT book]
Laser focus on value creation: Chaos changes the environment around you, but one constant remains: the definition of growth strategy. Strategy was, is, and will always be about one thing: value creation. And what is value creation? Driving the biggest gap possible between two things: your customer and consumers’ willingness to pay for your products, services, and solutions and your total cost of delivering that value. Re-ground yourself in value creation, and re-anchor your team in how you create value. Chaotic macro environments change the how; at times they adjust the what, but don’t let it forgo the notion itself.
Learn faster, grow faster: The biggest differentiator of high-performing organizations is learning velocity: those that learn faster are those that grow faster. Periods of extreme volatility are amazing times to grow as they are incredible times to learn. Your customers are going to be super clear on what matters the most; consumers will stop trying anything and focus on what they need; partners and vendors will be the most honest on what they need. Use this team to lean in: your learning loops will be tighter and faster over the next few months – take advantage of that! [Chapter 10 of the SRT book covers this]
Decision-making speed: We often confuse strategy and agility. Sometimes CEOs even tell me they are ‘not going to do strategy this year, as they want to be more agile.’ While I love the sentiment, this lack of strategy does not work in practice. The definition of agility is quickly making good decisions aligned with strategy. Agility necessitates a growth strategy! How can you do this? You don’t need months of scrum training – focus on two things. First, codify decision-making rights, or who the owner of the critical, repeatable decisions are. Second clarify what makes a good decision at your company. Chapter 10 of SRT describes this in detail, but you can also check out my recent article in Leader to Leader.
Isolate, and make, your no-regret moves: Some key decisions will need to wait until more information is known, but you always have more no-regret moves than you realize. What are these? A no-regret move is defined as a decision that even if your belief is wrong, you will not regret making this move. Investing in your own manufacturing facility is a regret move – if tariffs don’t materialize you would regret that massive capital outlay, but vetting additional suppliers is a no-regret move. [Chapter four of the SRT book]
Use multiple strategic stances: We are programed to act, and most leaders pride themselves on a bias to action, but sometimes it’s ok to wait. You can actively wait while you watch and learn. And when you act, you can also make moves to shape the environment in your favor through advocacy, lobbying, or related endeavors. And, critically, you can also act to learn more. Lean in and learn faster than your peer group. How? Map out your supply chain, talk to key customers, and work with key partners. [Chapter 10 of the SRT book]
Make it happen: Build internal predictability
Many leadership teams pride themselves on being great in a crisis.
There is power in rallying around a crisis. You have a catalyzing event, a shared sense of urgency, a renewed sense of team engagement, and a finish line to emerge out of it. This is great but not differentiating (as a note, most senior leaders tell me their teams are awesome in a crisis).
What is differentiating is handling ongoing chaos (and all other market situations) with a calm that leads to breakthrough growth.
I want leaders to stop priding themselves only on crisis management and instead become world class at building what I call internal predictability. The external world will continue to throw things at you. Continued shocks and possible opportunities mean people across all levels of the organization will find themselves in situations where they must exercise independent thinking and action. They can only do so if their organization has provided them with the information they need to take decisions, and they feel confident they can act and make decisions without fear of rebuke. This only occurs in organizations with internal predictability, which is achieved when all team members can say YES to the following:
I know what we are trying to achieve and why it matters.
I know where critical decisions take place.
I can rely on others to do what they say they will do.
When I do adapt, within the boundaries of strategy, it is recognized and rewarded.
What does building internal predictability take? Absolute clarity of value creation, consistency of messaging, context building and updates, and a steadfast commitment to growth, even if the how of achieving breakthrough growth will adjust.
Internal predictability is a capability. If you build it, you can open a distinct competitive advantage – time, treasure, and talent you can deploy for true value-creating activities.
Chaos has a cost. Commit to not paying it.
