It is a new era of political and economic uncertainty.
Joel Whitaker, Global Head of Research, Frontier Strategy Group continued Wednesday’s presentations with his observations on how to capitalize on disruption.
Whitaker works with general managers and heads of international companies, and helps them plan expansion strategies. They determine: Where is demand? How is cost of operations adjusting?
Whitaker’s remarks focused on:
* New era of political and economic uncertainty
* 2017 events to watch
* Moving from market intelligence to management action
A core part of his job is to provide economic forecast for growth, and to anticipate change. This is a difficult time to be a forecaster, Whitaker notes. The focus needs to be on resilience, not just economic growth.
We must be able to say what we think, but also to acknowledge uncertainty. Leaders, of course, want greater certainty, so there is “a psychic battle to be waged,” he said.
Biggest surprises of 2016 for the C-Suite:
- Brexit vote in the UK
- Donald Trump elected president
- Brazil’s President Rousseff impeached
- Attempted coup in turkey
- Leader resignations in Europe
- Zika in 61 countries
- US equities at record highs
The moral of the story is that every year, there will be surprises, and a better job can be done in managing potential for surprise.
FSG reviews nearly 100 potential scenarios to select global and regional events to watch. Great scenarios make unthinkable events understandable, memorable, trackable, and actionable.
Patterns in identifying 2016 events highlighted political/economic risks of populism. Threat of unrest, disruption of social contract, abrupt political change, regulatory disruption, economic disruption, and security disruption.
Market monitoring is more important than ever, notes Whitaker. Track leading indicators for your business to help leaders get a head start on demand planning, inventory management, commercial execution and course correction.
How do they think about risk factors right now?
Monitor potential external disruptions: Consider factors of velocity and likelihood in your assessments. The emphasis is on pattern recognition.
At present, Whitaker indicates some worldwide ripple effects are that China may lose control, Trump trade chaos, populists crash the euro, oil supply shock, U.S. infrastructure boom, workforce localization crackdown, and RIP Pax Americana.
China’s government may not be able to prevent a financial shock. China’s increasingly credit-fueled growth leaves the economy vulnerable to a massive financial shock, and China is critical in supply chains.
Normalizing protectionism would squeeze global growth; Trump has promised to renegotiate relations with key trading partners. The risk is that some “easy-to-do business with” countries will become more difficult to do business with as a result.
Anti-establishment victories in Europe would undermine the Euro; Europe’s populist electoral shockwaves may continue in 2017.
There is gathering momentum to force foreign business to “go local.” How much flexibility do you have to deploy talent to key strategic initiatives? There is some concern about this sustainability. There is great potential for increased difficulty in hiring foreign workers.
Oil supply shock would have mixed effects, notes Whitaker. Oil-price spike would fill the coffers of oil exporters but disrupt the economies of net oil importers. Sudden constraint on oil supply would be conflict in the Gulf, West Africa, and in Latin America and Venezuela.
The American global security umbrella is in question–U.S. security alliances have mitigated conflict in many areas. If that were to pull back, it would be worrisome. One direct effect would be increased defense spending by the effected countries. Where will that money come from? There would be shift in their budgets—tax increases and tariffs may result.
U.S. infrastructure boom is a diminishing upside opportunity under Trump. Trump could try to fuel growth by committing public funds to infrastructure development in the U.S., an unlikely priority for Congress.
How do you communicate change?
Ad-hoc adjustment to external surprise is the norm: Most companies struggle to pivot from recognizing an external problem to coordinating internal action.
Five ways to communicate findings are:
- Document key assumptions and risks to plan, leverage rest analysis, scenario design, and contingency planning beyond the strategic planning period.
- Upside/downside scenarios are easiest to communicate and monitor. Simple scenarios are easier to remember.
- Narrative scenarios for deeper executive engagement. “Heaven and hell” scenarios (for team-building) and narrative scenarios can be helpful.
- Use intelligence to prompt contingency planning for disruptive events. Consider whatever events are, how they disrupt, and prioritize risk. Then develop a contingency plan.
- Integrate scenario risk monitoring into regular business reviews