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If Brexit was on a hype cycle, what might it look like?

By Mark Raskino | July 20, 2016 | 0 Comments

“We got through the Great Fire of London, The Plague, The Blitz and Lehman Brothers and I’m sure we can survive Brexit” – it is reported that the deputy major for business said at a London Fintech conference this week. Gosh, does it really warrant those comparisons – in a technology related business context?

I’ve been amazed lately at some of the hyberbolic language used by normally quite calm and measured people about the business and economic effects of Brexit. Which made me wonder – is it going to follow a hype cycle?

First we have to test whether hype cycle thinking would apply at all. Is it an “innovation”? – yes, an unusual one, but nonetheless I can see it qualifies. The UK is the first country to try deliberately exiting a regional major trading block in the apparent pursuit of self interest. Is there a “market” adopting this? Yes – its forced to. Was there a clear trigger? For sure – a vote in June. So it looks like hype cycle thinking might be applicable.

However, we also have to acknowledge that this is a very unusual episode in severe negative  hype. For that reason the graph would need to be inverted. The Y axis variable is “future expected value”. For most innovations expectations operate in the net positive. But that’s not what’s happening here. If the curve is inverted, the usual names of the stages no longer apply and we need to find alternative descriptions. Here’s what I sketched out

Brexit reverse hype cycle

It kind of makes sense. The market hysteria gets very bad – the effect of social contagion and press amplification. But then it turns out the sky isn’t falling quite as quickly and severely as first feared. Stock markets are doing OK. UK unemployment is relatively low. The pound is down but not at dollar parity as some suggested. So a lot of rational reality sets in. Some might think the whole episode was a false fire drill – like Y2K, and they might then ignore it too much.

But in the end, Brexit probably does have an moderate enduing negative value expectation effect in the minds of the many. A ‘low lander’ plateau is likely. There could be a sustained slightly negative global business perception – the idea that the UK outside of its closest major regional trading block just doesn’t quite make sense.

So what’s the hype cycle takeaway for management decision making?  Hold your nerve and do not overreact to the massive negative hype. It will pass. Things will correct. They will probably over correct for a while. Then we will get to a settled view – that Brexit was indeed a negative for the UK economy – though not nearly as bad as first feared.  And then remember something else – its just one part of the picture. Other innovations – such as new trade deals with commonwealth countries might yet compensate for that enduing loss of European integration benefits.

I once helped the inventor of the hype cycle write whole book about it. I believe it is a widely applicable and powerful management thinking tool  – a way to stay oriented and work out what will really happen.. particularly when the world around you seems to be losing its rational poise.


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