The only way to manage global uncertainty is to engage with the wider business, political and social environment.
Firms are more at risk than ever of taking hits that have nothing to do with competitiveness, and everything to do with political and economic uncertainty, say Martin Reeves, Simon Levin, Johann D Harnoss, and Daichi Ueda, writing for MIT Sloan Management Review. Dealing with tumultuous times means learning to look beyond your company’s borders.
THE PROBLEM
US retailers like Walmart and Gap have long benefited from the ability to source products, and services from low-wage, low-tariff countries. Today, such strategies are becoming increasingly socially unacceptable, and political backlash in the form of new border taxes could hit profits hard.
In Europe, where energy companies failed to anticipate popular demand for renewable sources of electricity, the top utility companies lost 40% of their market value, with the top three worth only 25% of their 2007 peak.
Global political uncertainty has tripled since the turn of the century and continues to accelerate – but there are ways to deal with it.
THE SOLUTION
1) Map your environment. You can’t deal with what you don’t understand. Your business exists “in the context of a wider system that includes consumers, ecosystem partners, media institutions, and policymakers”. By studying the lie of the land, you come to understand where the threats and opportunities are, allowing you to take preemptive action.
2) Make subtle moves. Acting in complex systems where repercussions multiply, means taking the time to make thoughtful decisions.
When, in the 1990s, computer chips were in danger of becoming commodified, Intel hung onto its brand value by marketing itself directly to its customers, ensuring brand differentiation. As a result, the company became the industry leader and experienced exponential growth.
3) Collaborate. Managing the tension between your company’s needs and those of wider society means finding ways to manage small-scale conflicts and create mutual benefit. Build healthy relationships with NGOs by sharing information and fostering an open, positive attitude to differing interests. Dealing collaboratively with small conflicts is a good way to develop mutual trust and avoid bigger disputes.
4) Instigate change. It’s not enough simply to adapt your businesses to the challenges you face, you also need to prompt the sector as a whole to change. Talk about the social, political and technological risks your industry faces, and prod other actors into action.
5) Breakdown barriers. A leader should be an enabler, not just an authority figure. And in an uncertain world, that means extending your reach beyond your firm to also encompass your industry as a whole. Contributing to a better business ecosystem benefits everyone, but you most of all.
The business world is more uncertain than ever, but vision, adaptability and outreach will help your firm weather the storm.